Brexit’s impact on Russian economy will be limited — Central Bank chief

ST. PETERSBURG, June 30. /TASS/. The direct impact of Brexit on the Russian economy will be limited, Central Bank Chief Elvira Nabiullina said Thursday.

"Speaking about Brexit in particular, its estimated impact on the Russian financial system and economy will be rather limited," she said.

"The long-term implications will depend on particular agreements between the UK and the EU and their effect on the global economy and financial markets," she said.

The crude oil prices

Nabiullina went on to say that there will be no quick return to high crude prices.

"There is no quick return to high oil prices in store. The Russian economy has to get adjusted to low oil and gas prices, and on the whole we have to quit the habit of binding optimistic target forecasts with growing oil prices rather than with our own actions aimed at structural economic transformations," she said, adding that  Russian banks facing more challenging problems than regulator expected.

"A relatively favorable state of the banking system on the whole does not mean the financial recovery procedure in the banking sector is over. The problems accumulated by banks turned out more challenging than we expected. This first of all concerns serious amounts of loans granted to companies associated with owners of banks. Not all of those companies are successful while longtime projects have remained to be projects," she said.

The budget rule

The regulator's chief said the budget rule will ensure low inflation and a stable ruble amid volatile crude prices.

"We need budget rule for ensuring stably low inflation and the ruble’s stably flat exchange rate amid unstable oil prices and row cycle times," she said, adding that the regulator’s position in this regard is similar to that of the Finance Ministry.

She added the bank may start applying measures to head organizations of financial groups. Uncertainty over budget expenditures 

According to Nabiullina, the uncertainty over future budget expenditures causes serious inflationary risks.

"The uncertainty over the amount of budget expenditures, deficit, refinancing sources in the future causes serious inflationary risks," she said.

As was reported earlier the Finance Ministry may set the level of the new budget rule in the autumn. The new budget rule should rely on mid-term crude oil prices within $50 per barrel.

Key rate

According to Nabiullina, low deficit of Russia’s budget will facilitate quicker key rate cuts.

"We’ll be able to quicker cut the (key) rate in case of lower budget deficit," she said, adding that a more responsible budget policy will push inflation down.

Earlier Russia’s Finance Minister Anton Siluanov said he considers the target of lowering budget deficit to the level below 3% in 2017 unrealistic. According to Siluanov, the amount of tax revenues will be growing consistently with nominal GDP growth while non-tax revenues will be declining. At the same time Russia’s Economic Development Minister Alexey Ulyukayev said there is potential for reducing budget deficit below 3% in 2017.

Nationalization of banking sector

The regulator's head went on to say that the bank sees no serious risks of nationalization of the banking sector.

"In our view this risk (of nationalization of the banking sector - TASS) is not emerging. First of all the significance of the banks subjected to the financial recovery procedure is not great from the viewpoint of the banking sector," she said.

According to Nabiullina, over the past three years 28 banks subjected to the financial recovery procedure only accounted for around 4% of the banking sector’ liabilities.

"We don’t expect the significance of the banks undergoing the financial recovery procedure to rise in the nearest future," she said.

She added Russia’s banking system is sustainable though it is necessary to remove weak and unscrupulous participants from the financial market.

"We need to get the financial market recovered by removing weak and unscrupulous financial institutions from it," she said.

According to Nabiullina, the rising ability of Russia’s banking sector to withstand serious external shocks is one of the most important results of the regulator’s recent actions.

"On the whole the banking system is sustainable and having a decent capital reserve can efficiently operate without certain easing, which has been confirmed by stress tests organized by the Bank of Russia and biggest credit organizations," Nabiullina said.

Inflationary risks

Nabiullina went on to say that the uncertainty over future budget expenditures causes serious inflationary risks.

"The uncertainty over the amount of budget expenditures, deficit, refinancing sources in the future causes serious inflationary risks," she said.

Earlier Russia’s Finance Minister Anton Siluanov said that the Ministry would outline budget parameters while the ministries and departments will have to prepare proposals within reduced limits.

New measures

Russia’s Central Bank may start applying measures to head organizations of financial groups, Nabiullina said.

"It is reasonable to provide the Central Bank with the opportunity to apply corrective measures to the head organization of financial groups in case they violate regulatory acts," she said.

"In our view the time is ripe for proportional regulation in the banking sector. This means that the level of requirements to banks should be in line with banking transactions and the amount of risks taken by the bank. For this purpose we propose formation of a new type of credit organization - a regional bank," she said, adding that those may be "relatively small credit organizations with limited range of simple banking transactions" and aimed at "raising funds from private individuals and legal entities."

Bank's stress test

The regulator's head said the results of Russian banks’ stress tests will influence the amount of requirements to them in the nearest future.

"Stress tests organized both by banks themselves and by the Russian Central Bank will be playing an increasingly important role as their results will affect the amount of requirements to banks," she said, adding that first inspections at biggest banks will be launched in 2017.

According to Nabiullina, "the results of stress tests will be taken into account in supervisory decision-making, particularly, for estimation of potential mergers of banks, agreements regarding financial recovery plans and other decisions."

Consolidation fund

According to Nabiullina, the Central Bank will create a special consolidation fund in the banking sector to participate in the capital of banks undergoing the financial recovery procedure.

"The Bank of Russia is ready to take over a huge responsibility for the efficiency of the financial recovery procedure and act as the main organizer of this process. We’re going to submit a package of law amendments to the State Duma’s autumn session, which will support the creation of a special consolidation fund by Russia's Central Bank in the banking sector, which will enter the capital of the banks undergoing the financial recovery procedure," she said.