VTB still purchasing only floaters at OFZ auctions, awaiting certainty with inflation trajectory and rates
ST. PETERSBURG. July 4 (Interfax) - VTB , which last year said that it would only purchase variable coupon securities at the Russian Finance Ministry's auctions to place federal loan bonds (OFZ), is still adhering to this tactic, and there needs to be certainty regarding the trajectory of inflation and the key rate in order to consider buying 'classic' securities, First Deputy Management Board Chairman and CFO Dmitry Pyanov said.
Pyanov in July last year said that VTB would limit its participation in the Finance Ministry's auctions to place OFZ to purchasing floaters, and the bank has not bought fixed income OFZ at auctions since then, Pyanov told Interfax on the sidelines of the Financial Congress of the Central Bank of Russia (CBR) in St. Petersburg.
"We have been buying only floaters all year long, and our strategy has not changed," Pyanov said.
"What is the benefit of our strategy and why are 'fixed' ones still taboo for us? When OFZ yields widen on the heels of the key rate, the portfolio of 'fixed' ones, especially those bought long ago at previous rates, revalues downward. We could protect it [the portfolio] from revaluation by lowering the revaluation into capital, though this would still result in economic losses," he said.
"Since the dynamics of the key rate are rising, could there be a hike; how long could the increased rate last; and when would a cut begin - no one could predict exactly now. In fact, this is a natural way for us to hedge against uncertainty. The second unpleasant moment about 'fixed' ones is that they would utilize our limit for interest rate risk, because they would carry interest rate risk and limit our ability to accept, for example, our credit portfolio, according to 'fixed' ones. This is the second unpleasant feature that we are avoiding," Pyanov said.
The Finance Ministry, which has previously reproached state banks repeatedly for passive behavior at auctions, is currently not dissatisfied with VTB's tactics, Pyanov said.
"To be fair, it must be said to the credit of the Finance Ministry that they understand that there is logic in our decision, no matter how unpleasant it may be. Unfortunately, the dynamics of the key rate, the rhetoric and discussions about raising it also influence them. There are no plans to place OFZ at any cost, even at the cost of damaging the entire system. That is, in this situation, we do not feel any particular pressure from the position, 'let's force state banks'," he said.
"Therefore, until we have certainty about inflation, about a change in the inflation trend and the dynamics of the key rate, I think that any sane, rational player would invest only in floaters," Pyanov said.
The Finance Ministry placed OFZ totaling 505.5 billion rubles in the second quarter, and fulfilled only 50.6% of the plan for 1 trillion rubles. Nevertheless, the ministry has set the even more ambitious target of 1.5 trillion rubles for the third quarter.
