26 May 2023 17:13

Balance of payments trends could strengthen impact of deals with foreigners on exchange rate, so limit needed - CBR

MOSCOW. May 26 (Interfax) - Settlements with non-residents leaving Russia have not yet become a significant volatility factor for the domestic FX market, as the number of genuinely expensive transactions is small, but balance of payments trends could increase their impact, so oversight by the state is needed, the Central Bank of Russia (CBR) said.

The problem of the impact of transactions with foreigners leaving the market came to the fore at the beginning of April: at that time experts associated the wave of ruble weakening with, among other things, currency transactions associated with the departure of Shell (SPB: RDS.A) from Sakhalin-2. Both the Central Bank and the Finance Ministry urged in public statements at that time not to overestimate the role of this factor, and at a meeting with the president on economic issues, which took place the same day, the topic was discussed, and instructions were issued - to ensure by June 1 the setting of monthly limits not exceeding $1 billion for purchase of currency by residents in the market for transactions taking place upon permission of the authorities. There may be exceptions to this rule: the instructions provide for the possibility to determine "if needed" a list of cases in which the limit does not apply.

The Central Bank devoted a separate chapter to the issue in its traditional Financial Stability Review, published Friday.

"Payments to non-residents made in currencies of unfriendly countries can cause volatility on the Russian currency market. So far this factor has not been a key one: only five transactions approved since October 2022 involved payments to non-residents in volumes exceeding $400 million," the document said.

However, amid a reduction in the Russian current account surplus in 2023, these operations "may have a more significant impact on the foreign exchange market," the Central Bank said, and therefore the subcommission "will limit the monthly volume of non-residents' withdrawal from the Russian market".


In the period from March 2022 to March 2023, there were about 200 "departure" transactions, with only 20% of them being deals related to the sale of assets over $100 million by non-residents, the regulator said, citing statistics [the subcommission itself does not usually make its decisions public, publishing only some statements on general issues and not specific transactions, nor are any statistics disclosed].

Special attention is paid by the subcommission to financing of transactions related to the withdrawal of foreign investors from Russian assets, "in the context of a possible increase in the debt burden of the corporate sector and risks for banks, as well as the impact of these transactions on the volatility of the domestic FX market," the Central Bank said.

Many transactions are funded by loans via Russian banks, and intra-group financing is replaced by more expensive funding from other sources, which can lead to additional risks for banks, the review indicates. "Importantly, these risks may accumulate and later manifest themselves more strongly," the Central Bank said.

The subcommittee gives priority to "buyers with relevant experience in the relevant industry," paying note to the new owner's plans for business development, including the restructuring of technological, production and logistics chains which may be affected by the departure of a foreign investor, the regulator said.

"To this end, key performance indicators are established for the new owners of the acquired assets, and the relevant federal executive authorities monitor their fulfilment," the regulator said.

The practice of regulating currency exchange transactions as part of a particular transaction, permits for which are issued by a subcommission of the Government Commission on Monitoring Foreign Investment headed by Finance Minister Anton Siluanov (the regulator is also a part of the commission), has existed since last year. However, initially, before the decision on the aggregate limit was taken, it was applied only to certain transactions (for example, the application was granted on the condition that currency purchases on the domestic market would be limited to $150 million a day). Thus, purchasers of departing foreigners' assets, even while restricted in their operations by the limit, could influence the exchange rate processes when they entered the foreign exchange market at the same time.

The Central Bank also mentioned this practice in its review, without citing specific figures.

"The Bank of Russia also pays special attention to controlling the risks associated with possible spikes in volatility on the Russian currency market as a result of such transactions, so buyers are advised to distribute their currency purchases evenly on the domestic currency market," the document said.