Banks will lose 0.6 trillion rubles in net interest income due to key rate increase - Russian Central Bank

MOSCOW. Nov 30 (Interfax) - Russian banks, due to the increase in the key rate from 7.5% to 15% over a one year time horizon, will lose approximately 0.6 trillion rubles in net interest income, the equivalent of 0.5 percentage points of net interest margin, the financial stability review published by the Bank of Russia says.

"With a high net interest margin (4.8%), this will not significantly affect the financial position of banks, however, the actual impact may be more serious taking into account behavioral effects (the flow of funds from current accounts to deposits)," the Central Bank says.

The CBR emphasizes that interest rate risks have already been partially realized because of rising rates. The cost of bonds has decreased. The negative revaluation by banks of the trading portfolio of ruble bonds (taking into account the increase in the key rate to 15%) totaled 299.6 billion rubles (1.6% of the nominal value, or 2.0% of the capital of the banking sector). "The slight revaluation of the banks' bond portfolio was due to the high share of government securities and securities with floating coupons, as well as accounting for the majority of bonds at amortized cost (held until maturity and not subject to revaluation)," the Central Bank said.

Banks' exposure to interest rate risk remains high, taking into account the possible further flow of funds from current accounts and long-term deposits to deposits at increased rates amid the expectation of a long period of continued tight monetary conditions, the regulator said. It estimates the interest rate risk for the banking portfolio in the event of an additional increase in rates by 1 percentage point at 1.6%-3.6% of annual net interest income. "Banks need to improve the quality of their interest rate risk management," the Central Bank said.