BANK OF RUSSIA RESEARCH AND INFORMATION DEPARTMENT

FINANCIAL MARKET REVIEW 2012

Summary..................................................................................................... 1 1. Foreign exchange market........................................................................... 3 2. Money market........................................................................................... 8 3. Capital market ......................................................................................... 13 3.1. Government securities market ....................................................................................13 3.2. Corporate debt market ..............................................................................................22 3.3. Equity market ...........................................................................................................30 3.4. Loan and deposit markets ..........................................................................................36 3.5. Credit institutions and non-bank financial institutions in the capital market ......................43

4. Derivatives market.................................................................................... 47 Addendum.................................................................................................. 52

Moscow 2012

The aim of this review is to analyse the state of the main segments of the Russian financial market and their development trends. The analytical materials reflect the results of research work that has been carried out by the Bank of Russia’s Research and Information Department. The original information is based on Bank of Russia data and that of other financial market regulators, as well as market statistics and data provided by specialised news agencies. Unless otherwise stated, this review uses data available as at 24 December 2012.

Abbreviations ADR – American Depositary Receipts AHML – Agency for Housing Mortgage Lending CDS – Credit Default Swap DIA – Deposit Insurance Agency ECB – European Central Bank Fed – US Federal Reserve System FFMS – Federal Financial Markets Service GDP – Gross Domestic Product GDR – Global Depositary Receipts GKO – Short-Term Government Bonds GSO – Government Savings Bonds IMF – International Monetary Fund IPO – Initial Public Offering JSC – Joint Stock Company MIACR – Moscow Interbank Actual Credit Rate MIACR-B – Moscow Interbank Actual Credit Rate-B-Grade MIACR-IG – Moscow Interbank Actual Credit Rate-Investment Grade MIBID – Moscow Interbank Bid Rate MIBOR – Moscow Interbank Offered Rate MICEX – Moscow Interbank Currency Exchange MICEX SE – MICEX Stock Exchange Moscow Exchange – Since 29 June 2012, the name of the exchange established as a result of the MICEX and RTS merger on 19 December 2011. NBCI – Non-Bank Credit Institution OBR – Bank of Russia Bonds OFZ – Federal Loan Bonds OGVZ – Government Foreign Currency Bonds OTC – Over-the-counter OVGVZ – Internal Government Foreign Currency Bonds OVOZ – Domestic Government Bonds placed in the international capital market PIF – Unit Investment Fund RTS – Russian Trading System SME – Small and Medium Enterprises SPCEX – Saint Petersburg Currency Exchange SPO – Secondary Public Offering UTS – Unified Trading Session VEB – Vnesheconombank bp – basis points (0.01 pp) pp – percentage points

Summary

In 2012, the Russian financial market developed amid the continued growth of the Russian economy. It was affected by developments in foreign commodity markets and financial markets, as well as changes in the risk appetite of global investors. The most significant external shocks for the Russian financial market during the period under review were related to price fluctuations in the world oil market and the eurozone’s sovereign debt crisis. According to estimates, the rate of growth of the country’s financial market in terms of value was slower than Russia’s nominal GDP growth rate in 2012 (see Table 1 in the Addendum). As a result, the financial market capitalisation to GDP ratio declined to 108% as of late 2012 from 112% a year earlier (Chart 1). Relative to GDP, equity market capitalisation fell by 8 pp to 39%, the volume of outstanding debt securities increased by 2 pp to 24% and the debt of non-financial organisations and households on bank loans also grew by 2 pp to 45%. The financial market’s price indicators demonstrated uneven dynamics in 2012. In January-February and in the first half of March 2012, the growing volumes of Russian banks’ liquidity kept money market rates below the level registered in the preceding months in 2011. The rouble’s appreciation coupled with a relatively low inflation rate, intensified the interest of investors, including non-residents, in rouble-denominated securities and contributed to an increase in their prices. Meanwhile yields on major types of rouble bonds were seen to decline (Chart 2). From mid-March, the situation in the main segments of the Russian financial market started to deteriorate under the impact of falling

2012



world oil prices and global financial market instability. Russian banks’ rouble liquidity decreased, while money market rates went up. Investors’ demand for roubledenominated equity and debt securities declined and their prices fell. The appreciation of the Russian rouble came to a halt, and in May the rouble fell sharply against the world’s major currencies. In September 2012, the Russian financial market was strongly influenced by actions undertaken by monetary authorities in Russia and abroad. On the one hand, the US Federal Reserve announced a third round of quantitative easing (QE3) and the European Central Bank unveiled a new programme to stabilise the eurozone sovereign debt market. These measures increased investors’ risk appetite and provided support for the prices of securities, including Russian debt instruments. On the other hand, higher inflation risks prompted the Bank of Russia to raise interest rates on its operations, which led to a corresponding increase in money market rates. During most of 2012, money market rates were close to the rates on repo transactions conducted with the Bank of Russia. The average annual level of money market rates increased compared with the previous year. While interbank unsecured lending operations expanded, the turnover in interdealer repo transactions contracted, partly due to the fact that banks increased their borrowing from the Bank of Russia. Throughout most of 2012, Russian banks were net creditors of foreign banks. Russian banks continued to expand their lending to non-financial organisations and households in 2012, with the growth of their corporate loan portfolio slowing

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Financial market review

and their retail loan portfolio accelerating year on year. Lending volumes were primarily influenced by the demand from the principal categories of borrowers. The moderate growth rate of the Russian economy in the second half of the year, which saw signs of slowing economic activity, restricted the demand from enterprises in the real sector for loans and restrained the growth of interest rates on these loans. At the same time, the growth of household real income and stronger consumer sentiments stimulated household demand for loans, even though loan interest rates remained relatively high (due to the banks’ increased costs and risks associated with retail lending compared with corporate loans, as well as the banks’ desire to achieve maximum returns on their household lending operations). Banks continued to tighten both price-related and non-price-related lending conditions for corporate borrowers. In retail lending, banks compensated borrowers for the deterioration of price terms by improving some of their nonprice conditions, in light of the high level of competition in this promising segment of the loan market. The quality of the banks’ total loan portfolio deteriorated slightly in 2012 due to the growth of overdue loans to non-financial organisations. The domestic loan market developed alongside the dynamic expansion of the corporate bond market. The annual volume of corporate bonds that were floated in the domestic market reached a record high. The strongest demand in the primary and secondary segments of the corporate bond market was for the securities of reliable issuers, which viewed the issuance of bonds as an important source of funding and an alternative to borrowing from banks. Measures that were taken to liberalise the OFZ market increased investors’ interest in OFZ bonds, allowing the Russian Ministry of Finance to improve the structure of the portfolio of outstanding government bonds, and OFZ secondary trade volumes grew considerably. In the domestic equity market, Russian stock indices fluctuated within a wide horizontal band. In the primary market, issuers delayed the majority of their planned share offers. The secondary trade turnover fell considerably, slowing activity in the stock segment of

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the futures market and reducing the overall volume of exchange-traded transactions with derivatives. The situation in the domestic foreign exchange market in 2012 continued to influence developments in the money market and capital market. Depending on prevailing trends, the Bank of Russia acted as both the buyer and seller of foreign currency in the domestic foreign exchange market during the period under review to mitigate exchange rate fluctuations. In July, in order to further raise the exchange rate flexibility, the regulator widened the floating operational band of the rouble value of the bi-currency basket. Amid the rouble’s high volatility, especially in the first half of the year, the nominal rouble exchange rate registered a moderate increase against major foreign currencies in 2012. The organised financial market’s infrastructure continued to develop in 2012. This development was primarily related to the implementation of practical measures to consolidate the trading and settlement infrastructure within the Moscow Exchange. Specifically, the Central Depositary was launched and decisions were taken to admit foreign clearing companies to the Russian securities market. The list of traded financial instruments continued to expand and amendments were made to the legal framework which regulates specific segments of the financial market. Therefore, despite its exposure to serious external shocks, the Russian financial market remained stable in 2012 and continued to perform its function of redistributing financial resources in the national economy. In 2013, the Russian financial market will develop amid persisting uncertainty with respect to global economic prospects. The available forecasts and scenarios basically suggest that growth in the advanced and emerging economies will be slow, that debt problems will persist in some developed countries and that foreign financial markets will experience instability. For Russia, these factors may lead to a moderate decrease in the demand for and the prices of its major export commodities, a slowdown in economic growth and the persistence of high volatility among its domestic financial market indicators.

2012

1. Foreign exchange market

In 2012, the domestic foreign exchange market was influenced by the dynamics of global prices for Russia’s major export commodities (primarily oil prices), by cross-border capital flows, and also by the Bank of Russia’s exchange rate policy. In January-March 2012, as world oil prices tended to grow, Russia registered a substantial inflow from foreign trade operations, which provided support for the national currency and contributed to the rouble’s appreciation. However, the increased supply of foreign currency from current account receipts during this period was accompanied by a net outflow of private capital. A sharp fall in world oil prices in May-June 2012 created intensive pressure on the rouble and was the main reason for the currency’s considerable depreciation. Net private capital inflow in June failed to provide sufficient support to the weakening rouble. As world oil prices started to recover in July, the rouble partially restored its positions. The national currency remained highly sensitive to world commodity market trends. In 2012, the Bank of Russia continued to implement its exchange rate policy, which is aimed at mitigating excessive fluctuations of the national currency. At the same time, however, the regulator did not obstruct the developments in rou­ble exchange rate dynamics, which were determined by fundamental macroeconomic factors. The Bank of Russia continued to use the rouble value of the bi-currency basket (0.45 euros and 0.55 US dollars) as an operational indicator of its ex­change rate policy. The range of its fluctuations was determined by the floating operational band. The band’s borders were adjusted automatically depending on the volume of foreign exchange interventions. The actions taken by the

regulator to improve the Bank of Russia’s exchange rate policy and create conditions for switching to the rouble’s free floating by 2015 were also designed to neutralise market participants’ steady expectations regarding further exchange rate dynamics. In order to increase the flexibility of the rouble exchange rate, the Bank of Russia widened the floating operational band from 6 roubles to 7 roubles symmetrically on 24 July 2012 and reduced the volume of cumulative interven­tions triggering a 5 kopeck shift in the operational band from $500 million to $450 million. The Bank of Russia’s interventions helped maintain a relative balance between foreign currency supply and demand in the domestic foreign exchange market and continued to exert significant influence on the international reserves dynamics throughout 2012 (Table 1.1). The Bank of Russia considerably reduced the volumes of its interventions in the domestic foreign exchange market. The Bank of Russia’s operations largely involved target interventions that had no influence on the floating operational band. The rouble value of the bi-currency basket tended to fall in January-March 2012 under the impact of factors determining foreign currency supply and demand in the domestic foreign exchange market, while its volatility remained low (Chart 1.1.). The sharp increase in the basket’s rouble value in May with subsequent price adjustments was accompanied by a rapid growth in its volatility. The short-term volatility of the bi-currency basket’s rouble value increased considerably in 2012 as compared with 2011 (Table 1.2). There was no marked downward or upward trend in the exchange rates’ dynamics of the major world Table 1.1

Bank of Russia interventions in domestic foreign exchange market (billions of US dollars) Month I II III IV V VI VII VIII IX X XI XII Total

2012



2010 Purchase 2.2 7.1 15.1 11.9 5.7 2.2 0.5 1.3 0.0 57.8

Sale 1.4 3.8 5.6 0.9

2011 Purchase 0.8 4.6 5.4 3.7 4.5 4.0 5.1 1.2 46.2

Sale 0.7 7.6 5.0 1.6 2.0

2012 Purchase 0.5 2.8 4.3 4.0 1.7 -

Sale 0.7 0.3 2.4 1.1 0.4 0.5 0.0 0.1

18.8

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Financial market review

currencies against the rouble during most of 2012 (Chart 1.2). The US dollar continued to be the main foreign currency in the domestic foreign exchange market in 2012, with its exchange rate remaining highly volatile against the rouble (Chart 1.3, Table 1.2). The official US dollar/rouble rate fell by 4.3% from the level registered as of 1 January 2012 to 30.8110 as of 1 December 2012. The volatility of the euro/rouble exchange rate remained at the level of the previous year (Chart 1.4, Table 1.2

Short-term volatility indicators in 2011 and 2012*

Bi-currency basket US dollar/rouble rate Euro/rouble rate

Average daily change, %

Maximum daily change, %

0.34→0.41 0.51→0.49 0.35→0.33

2.69→2.32 3.66→2.07 3.35→1.60

Range of fluctuations, roubles 4.53→4.43 5.51→4.85 4.39→3.58

* The figures to the left of the arrow are given for 2011 and the figures to the right of the arrow are given for January-November 2012.

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Table 1.2). The official euro/rouble rate fell by 3.8% to 40.0759 as of 1 December 2012. The domestic foreign exchange market is significantly influenced by the exchange rate expectations of its professional participants. An assessment of exchange rate expectations is normally based on the analysis of spreads between futures/forward1 rates and spot rates of foreign currencies against the rouble. In 2012, the forward spreads on longer-term contracts for the US dollar/rouble and euro/rouble rates remained wide (Chart 1.5), indicating market participants’ expectations of the rouble’s depreciation against major world currencies in the medium term (up to one year). The prices of shorter-term contracts basically demonstrated market participants’ uncertainty about the short-term dynamics of the national currency. The real exchange rate of the rouble against the currencies of Russia’s major trading partners showed 1

  The US dollar/rouble and euro/rouble forward and spot rates in the OTC market are based on data provided by Thomson Reuters.

2012

Foreign exchange market

moderate changes in 2012 (Chart 1.6). In November 2012 (on December 2011), the real rouble/US dollar rate increased by 3.7% (compared with 1.1% in 2011) and the real rouble/euro rate grew by 6.4% (1.6% in 2011). The real effective rate of the rouble against foreign currencies rose by 3.8% (3.8% in 2011). The activity of participants in the domestic interbank foreign exchange market slightly increased in 2012 compared with 2011, along with the growth of the exchange deals’ segment. The total average daily turnover2 of interbank transactions with all currency pairs in terms of US dollars increased in 2012 compared with 2011. This was largely due to the rouble/US dollar transactions, while the volume of the US dollar/euro  Calculations are based on data indicated in reporting form No. 0409701, ‘Report on Foreign Exchange and Money Market Operations’, provided by credit institutions that are the largest operators in the domestic FX market and account for over 99% of overall turnover in the domestic interbank FX market (according to Bank of Russia estimates).

2

2012



transactions contracted significantly (Table 1.3, Chart 1.7). There were no sharp changes in the structure of the interbank spot FX market in 2012 compared with the previous year (Chart 1.8). The rouble/US dollar operations continued to overwhelmingly dominate the market (accounting for over 70% of transactions). The share3 of rouble/US dollar operations increased largely due to the contraction of the share of transactions with the US dollar/euro pair (from 23.7% in 2011 to 18.1% in 2012). Despite the further expansion of turnover in rouble/euro transactions, the share of these operations remained low but it steadily held its third position in the turnover of the Russian foreign exchange market. The proportions of other currency pairs were insignificant. The analysis of exchange trade turnovers in the major currency pairs in 2012 shows market participants’ 3

The proportions of currency pair operations are calculated excluding the double count. This implies that the proportions of operations with all currency pairs equal 100%, when they are summed up.

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Financial market review

Table 1.3

Average daily turnover of Russian foreign exchange market (billions of US dollars) Exchange market** Rouble/US dollar Including: –  transactions for ‘today’ and ‘tomorrow’ settlements –  swap transactions Rouble/euro*** Including: –  transactions for ‘today’ and ‘tomorrow’ settlements –  swap transactions Interbank spot market**** All currencies Including: –  rouble/US dollar – rouble/euro –  US dollar/euro Interbank forward market**** All currencies Including: –  rouble/US dollar – rouble/euro –  US dollar/euro Bi-currency basket US dollar/rouble rate for ‘tomorrow’ settlements Euro/rouble rate for ‘tomorrow’ settlements

2007

2008

2009

2010

2011

2012*

5.83

9.67

9.84

9.08

9.94

12.31

3.48

5.44

4.35

4.59

5.82

7.11

2.46 0.12

4.45 0.77

5.70 1.58

4.68 1.01

4.33 1.25

5.28 1.72

0.07

0.27

0.26

0.28

0.38

0.50

0.06

0.51

1.35

0.74

0.88

1.26

54.84

69.63

40.14

42.63

54.75

56.66

30.34 1.17 14.62

43.07 2.40 17.49

26.03 3.08 9.40

27.56 2.33 10.90

35.49 3.13 12.98

39.96 3.95 10.02

1.86

3.01

1.25

1.54

2.03

1.70

0.64 0.04 0.72

1.14 0.07 0.57

1.12 0.07 0.33

34.80 30.38 40.21

34.57 29.39 40.91

35.05 31.12 39.89

1.48 0.04 0.18

2.22 0.50 0.10 0.04 0.54 0.62 Memo item, average indicators (roubles) 29.62 30.08 37.36 25.56 24.88 31.78 35.03 36.46 44.22

* Calculations are based on data for January-November 2012. ** Calculations are based on data of the Moscow Exchange, proceeding from the actual number of business days when these operations were held. *** Billions of euros. **** Calculations are based on data submitted as per reporting form No. 0409701, ‘Report on Foreign Exchange and Money Market Operations’.

increased interest in operations conducted in the exchange segment (Charts 1.9, 1.10), which retains its significance for the exchange rate policy. The volumes of exchange deals with other currency pairs (euro/US dollar, rouble/Chinese yuan, and also transactions with the currencies of the CIS countries, among Russia’s major trading partners) remained insignificant.

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On 23 April 2012, as part of efforts to further expand the set of available market instruments, the Moscow Exchange launched long-term foreign exchange swap trades with one- and two-week, one‑, two-, three- and six-month maturities for the second part of swap transactions, and on 20 August 2012 it started offering swaps with second part settlements in nine months and one year. The set of market instruments

2012

Foreign exchange market

was expanded to respond to the need of foreign exchange market participants to have currency swaps with maturities of up to one year available to them. The forward segment of the Russian interbank foreign exchange market remained illiquid in 2012, registering considerable fluctuations in the activity of its participants (Table 1.3, Chart 1.11). The overwhelming majority of transactions were concluded with rouble against US dollar (Chart 1.12). The weak development of the Russian forward market, the limited set of its instruments, and also the speculative nature of most forward FX deals considerably restrict the ability of market participants to hedge their risks. Therefore, worldwide market changes throughout 2012 had their effect on the dynamics of the exchange rate of the national currency. As part of its exchange rate policy, the Bank of Russia held interventions in the domestic foreign exchange market to mitigate excessive fluctuations of the rouble and keep its volatility within acceptable limits. The Bank of Russia consistently changed the parameters of its exchange rate policy in order to increase the exchange rate flexibility, scale

2012



down its operations in the domestic foreign exchange market and create conditions to facilitate a gradual transition to a floating exchange rate regime. The activity of domestic interbank FX market operators remained close to the previous year’s level. *** The situation in the domestic foreign exchange market in 2013 will be determined by the same basic factors, namely, global prices for commodities that are Russia’s key exports, cross-border capital flows and the Bank of Russia’s exchange rate policy. A forecast of Russia’s social and economic development, which was used for compiling the parameters of the federal budget for 2013-2015, assumes that the average world market price of Russia’s Urals crude will be slightly lower in 2013 than in 2012 (by about 10%), which will result in the contraction of the current account surplus. At the same time, net private capital outflow is likely to continue in 2013. The Bank of Russia will continue to implement its exchange rate policy without obstructing the developments in rouble exchange rate dynamics determined by fundamental macroeconomic factors and without setting any fixed limits on the exchange rate level of the national currency. At the same time, the Bank of Russia will continue to increase the exchange rate flexibility gradually, scaling down the volume of its interventions in the domestic foreign exchange market, while retaining the possibility of influencing exchange rate dynamics in order to mitigate excessive rouble fluctuations. As a result, the effect of the Bank of Russia’s exchange rate policy on the domestic foreign exchange market will weaken, while the significance of the market factors will increase. Assuming that uncertainty regarding the prospects of global economic development will persist in 2013, rouble volatility may slightly increase, while the rouble’s average annual nominal exchange rate against major world currencies may decrease (albeit insignificantly) under the impact of inflation.

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2. Money market

The significance of interbank loans for Russian banks slightly declined in 2012, although they continued to play a highly important role. As of 1 December 2012, interbank loans and deposits accounted for 8.7% of banks’ assets and 9.2% of their liabilities (compared with 9.5% and 10.9% as of the beginning of the year). That is why the state of the money market remained one of the factors affecting the functioning of the Russian banking sector as a whole. Money market trends in 2012 developed amid the persistence of the banking sector’s structural liquidity deficit, which emerged in the second half of 2011. Russian banks’ total liabilities to the Bank of Russia never fell below 500 billion roubles during 2012, reaching 2 trillion roubles in some periods. Amid the persistence of the structural liquidity deficit, during most of 2012 money market rates were close to the interest rates on the Bank of Russia’s repo operations. In 2012, the average spread between the MIACR on overnight interbank rouble loans and the minimum rate on auction-based repo transactions with the Bank of Russia amounted to 20 bp. Interest rates on the Bank of Russia’s operations were a major factor that influenced money market rates. Specifically, the Bank of Russia’s decision to raise interest rates on its operations starting from September 14, 2012 was followed by comparable growth in interest rates in the main segments of the money market. Limits on auction-based repo transactions with the Bank of Russia were another feature of the Bank of Russia’s operations that influenced money market trends. In the first half of 2012, there were numerous instances when the banks’ demand for liquidity at repo auctions exceed-

8

ed the Bank of Russia’s limit (liquidity provision volume). This caused a considerable increase in interest rates at repo auctions and, consequently, in the main segments of the money market. The liquidity situation changed throughout 2012, influencing money market situation. Federal budget operations were the most important autonomous factor to affect banking liquidity. At the end of 2011, large-scale budget expenditures caused a significant increase in the banking sector’s rouble liquidity. As a result, in January-February 2012, banks held substantial volumes of liquid funds and showed moderate demand for rouble liquidity. In January-February 2012, average balances of credit institutions’ deposit accounts with the Bank of Russia totalled 0.33 trillion roubles as against 0.15 trillion roubles in the fourth quarter of 2011 (Chart 2.1). Credit institutions’ average balances of correspondent accounts with the Bank of Russia amounted to 0.78 trillion roubles (compared with 0.77 trillion roubles in the fourth quarter of 2011). In this situation, credit institutions’ demand for the Bank of Russia’s refinancing instruments was weaker than in late 2011. Credit institutions’ average liabilities to the Bank of Russia for repo transactions fell to 0.37 trillion roubles in January-February 2012 from 0.56 trillion roubles in the fourth quarter of 2011. The average level of interest rates slightly decreased in January-February 2012 compared with the end of the previous year. The average MIACR on overnight interbank rouble loans fell by 54 bp to 4.6% p.a. in January-February 2012 from the fourth quarter of 2011. (Chart 2.2). The average rate on overnight repo transactions with bonds (the MICEX BORR index) decreased by

2012

Money market

45 bp to 5.2% p.a. in January-February 2012 from the fourth quarter of 2011. In March-July 2012, federal budget revenues exceeded federal budget expenditures. This resulted in a wider structural liquidity deficit in the banking sector and a higher level of the money market rates. Average daily balances of credit institutions’ deposit accounts with the Bank of Russia narrowed to 0.10 trillion roubles in March-July 2012, while average daily balances of correspondent accounts with the Bank of Russia fell to 0.70 trillion roubles. This period registered a strong rise in credit institutions’ demand for the Bank of Russia’s refinancing instruments, especially auction-based repo transactions. Credit institutions’ average liabilities to the Bank of Russia for repo transactions totalled 0.94 trillion roubles in March-July 2012. In light of the banks’ stronger demand for liquidity, the Bank of Russia raised the limits for auction-based repo transactions and also took measures to expand the list of securities eligible as collateral in refinancing operations. Specifically, in May 2012 the Bank of Russia resumed conducting exchange-traded repo transactions with equities included in its Lombard List. These measures helped achieve a certain balance between liquidity supply and demand in the money market. The declining volume of liquidity among Russian credit institutions, coupled with the rouble’s depreciation against major world currencies in May-June 2012 caused a significant increase in money market rates. The average MIACR on overnight interbank rouble loans reached 5.5% p.a. in March-July 2012, exceeding the Bank of Russia’s minimum overnight repo auction rate (5.25% p.a.). The average overnight bond repo rate totalled 5.9% p.a. over this period. In August-December 2012, federal budget expenditures increased. As a result, the liquidity shortage growth slowed down sharply. In certain periods this shortage was observed to shrink, contributing to the

2012



fall in money market rates. At the same time, the Bank of Russia’s decision to raise interest rates in September exerted upward pressure on money market rates. The interaction of these factors caused an increase in short-term money market rates. The average MIACR on overnight interbank rouble loans measured 5.8% p.a. in August-December 20121, while the average overnight bond repo rate reached 6.0% p.a. over the same period. The term structure of interbank lending rates varied during 2012 (Chart 2.3). Interest rates on loans for a term of up to one month fell significantly in the first quarter of 2012, whereas rates on the longest-term loans increased, evidencing money market expectations of a rise in short-term lending rates (which occurred in the subsequent months of 2012). In the fourth quarter of 2012, the slope of the yield curve of interbank lending operations decreased, suggesting an expected seasonal fall in interbank lending rates at the beginning of 2013. The interdealer repo market turnover contracted whereas the volume of interbank lending operations expanded in 2012. The average daily turnover of interdealer repo transactions on the Moscow Exchange (based on a sample of the MICEX BORR and MICEX EQRR indices) declined by 16.7% in 2012 from the previous year to 202.0 billion roubles. Meanwhile, the average daily volume of Russian banks’ operations of providing interbank loans (MIACR sample) increased by 22.0% over the same period to 191.3 billion roubles. The contraction of interdealer repo transactions was caused by a number of reasons. Some participants switched to borrowing from the Bank of Russia rather than from the interdealer market (the substitution effect), while some participants also reduced lending in the interdealer repo

1

  The indicators for December 2012 in Section 2 were calculated for the period of 1-20 December.

9

Financial market review

market due to their own liquidity constraints2. The share of securities not utilised in repo transactions with the Bank of Russia declined in the total pool of available collateral. This, in turn, restricted the banks’ ability to raise funds in the interdealer repo market and made interbank lending market more attractive. Rouble interbank lending rates demonstrated moderate volatility in January-February 2012, whereas in the subsequent months of 2012, rate volatility increased significantly. As a result, the average indicators of interbank lending rate volatility in 2012 slightly exceeded the figures for 2011 (Chart 2.4). The average daily absolute change in the MIACR on overnight interbank rouble loans widened to 20 bp in 2012 from 15 bp in 2011. This indicator for interdealer bond repo rates increased from 11 bp in 2011 to 13 bp in 2012. As in previous years, a temporary spike in rates was observed during

  See the ‘Interdealer Repo Market Report, II Quarter 2012’ prepared by the Bank of Russia Financial Stability Department (available on the Bank of Russia’s website at: www.cbr.ru).

periods when taxes were being paid, as well during other periods when regular payments were being made by banks and their customers in 2012. The bid/ask spreads in the money market were close to the levels registered in 2011. Specifically, the average spread between the interbank offered/bid (MIBOR/MIBID) rates in 2012 equalled 0.7 pp for overnight interbank rouble loans and 1.1 pp for rouble loans with terms from 181 days to one year compared with 0.6 pp and 1.3 pp, respectively, in 2011. The credit quality of borrowers increased, which helped reduce the level of credit risk in the interbank lending market. With regard to the overall volume of interbank loans, which Russian banks raised from resident banks for terms of less than one year, the average share of loans attracted by banks with investment-grade ratings3 increased from 40% in 2011 to 56% in Janu-

2

10

3

  The debt rating must be at least Baa3 according to Moody’s or BBBaccording to Fitch and Standard & Poor’s.

2012

Money market

Russian Banks’ Operations with Foreign Banks The volume and the structure of Russian banks’ operations with foreign banks are among the most important factors determining the nature of the influence exerted by global market trends on the Russian money market. The structure of Russian banks’ operations with foreign banks has been balanced in the past few years: claims on non-resident banks have been close to the level of Russian banks’ liabilities to foreign lenders. At the same time, an analysis of the balance sheet statements of some banks shows that the structure of operations conducted by various groups of Russian banks1 in global markets differed substantially. Non-residents’ subsidiary banks were the most active operators among Russian banks in the segment of operations with foreign banks. By the end of 2012, the share of these banks in interbank loans raised by Russian banks in the world market was over twice as much as the share in the Russian banking sector’s total assets. Most of these banks were net borrowers in the world interbank lending market. It may be presumed that these subsidiaries’ policies of building up borrowings from foreign banks were driven, to one extent or another, by the possibility of raising funds from their parent organisations or the structures affiliated with them. Russian state-controlled and private banks were less active in the international interbank lending market. The groups of banks covered by the analysis mostly attracted long-term loans and placed short-term funds. This policy was especially evident in operations conducted by private banks. The existing structure of Russian banks’ operations in the world market caused the domestic money market to respond to external shocks relatively weakly. Differences in the term structure of claims and liabilities predetermine the Russian banks’ low exposure to liquidity risk in operations with non-residents. Interbank lending operations with foreign banks accounted for a comparatively small share of Russian state-controlled and private banks’ assets and liabilities. As a result, the Russian interbank lending market in 2012 showed no instances of turbulence caused by instability in the world market. These instances are also unlikely to be observed in 2013.  The analysis covered banks with assets of over 100 billion roubles. There are 51 such banks, which account for over 80% of the Russian banking sector’s assets.

1

ary-November 2012 (Chart 2.5). At the same time, the average share of overdue loans in the total volume of interbank rouble loans placed by Russian banks declined to 0.34% in January-November 2012 from 0.37% in 2011. The MIACR-B (the rate on loans to banks with speculative-grade credit ratings4) changed in tandem with the MIACR-IG (the rate on loans to banks with investment-grade credit ratings). The average monthly spread between these two rates did not exceed 0.4 pp during most of 2012 (Chart 2.6). Therefore, the interest rate increase on loans to various categories of borrowers was comparatively uniform. Foreign (non-resident) banks remained the main counterparties of Russian banks in the segment of interbank foreign currency loans. As of the beginning of December 2012, Russian banks placed 79% of their foreign currency loans with non-resident banks and attracted 78% of these loans from non-residents. The activity of various groups of Russian banks in operations with foreign banks and the structure of their operations   Ratings between B3 and B1 according to Moody’s and between Band B+ according to Fitch and Standard & Poor’s.

4

2012



differed significantly (see the box: ‘Russian Banks’ Operations with Foreign Banks’). In January-October 2012, the average rate on overnight interbank foreign currency loans placed by Russian banks equalled 0.22% p.a. for US dollar loans and 0.14% p.a. for euro loans (the overnight US dollar LIBOR was 0.15% p.a. and the overnight euro LIBOR was 0.18% p.a. over this period) (Chart 2.7). The volatility of interest rates on foreign currency loans placed by Russian banks remained moderate. During most of 2012, Russian banks were net creditors of foreign credit institutions. The excess of interbank loans placed with foreign banks over interbank loans raised from non-resident banks registered a local maximum of 372.1 billion roubles ($11.6 billion) in early August 2012, after which this indicator declined (Chart 2.8). As before, the domestic money market was characterised by a high concentration of participants (Chart 2.9). As of the beginning of December 2012, the top 30 banks accounted for 71% of total interbank loans raised by Russian banks in the domestic market (compared with 74% in early January 2012). The share of Russia’s 30 largest banks in the volume of interbank loans placed in the domestic market stood at 69% just as at the beginning of 2012. The market concentration

11

Financial market review

by region remained significant (Chart 2.10). As before, the interbank lending market was dominated by Moscow-based banks, which raised 92% and placed 87% of total loans as of 1 December 2012 (compared with 91% and 85%, respectively, as of early 2012). The currency and term structure of operations between residents in the Russian money market registered no significant changes. As before, the market was dominated by short-term rouble operations. In December 2012, overnight transactions accounted for 92% of Russian banks’ rouble lending operations (MIACR sample) and 92% of interdealer repo market turnovers (based on a sample of the MICEX BORR and MICEX EQRR indices). These indicators were close to the figures for 2011. The domestic money market, as before, mostly registered rouble operations. Therefore, the money market structure in 2012 showed changes by segment. The interdealer repo segment contracted, while the turnovers of interbank lending market operations expanded. The term, currency and regional structure of the Russian money market, which had been developed in 2011, remained unchanged in 2012. As before, the money market was characterised by a high concentration of participants. The share of banks with the highest credit rating (mostly the largest banks with government and foreign-owned stakes) in the structure of interbank lending market operations increased, contributing to lower credit risk in the money market. The level of money market rates in 2012 increased amid the persisting structural liquidity deficit, which had emerged in the second half of 2011.

12

*** As in 2012, the situation in the Russian interbank lending market in 2013 will be primarily determined by banking sector liquidity and interest rates on the Bank of Russia’s operations. A forecast of Russia’s social and economic development, which was used for compiling the parameters of the federal budget for 2013-2015, envisages a reduction of federal budget expenditures and the build-up of balances in the general government accounts with the Bank of Russia (by 0.6 trillion roubles under the baseline scenario). The amount of cash in circulation will continue to grow (by 0.7 trillion roubles). These separate factors will contribute to a decrease in banking sector liquidity. Under this scenario, Russia’s current account surplus is expected to contract by $52 billion and net private capital outflow is expected to contract by $57 billion. As a result, the Bank of Russia will continue to increase its net foreign assets (by 0.8 trillion roubles, as envisaged by the forecast), which will contribute to the growth of banking sector liquidity. Therefore, given the baseline scenario, the structural liquidity shortage in the banking sector will continue to widen in 2013. With the banks’ growing demand for rouble liquidity, the Bank of Russia will expand the refinancing of credit institutions (by 0.6 trillion roubles under the baseline scenario). Given the persistence of the structural liquidity deficit experienced by credit institutions, interbank lending rates will remain in the upper half of the Bank of Russia interest rate band.

2012

3. Capital market

3.1. Government securities market 3.1.1. OFZ market Developments in the government securities market in 2012 were influenced by investors’ growing interest in OFZ issues. The increased activity of domestic market participants was caused, in particular, by the enactment of legislative amendments that had been designed to liberalise the government securities market and improve its liquidity (see the box: ‘Liberalisation of the Government Securities Market’). The market participants’ strong demand for the most liquid OFZ issues allowed the issuer to float them on terms that were rather advantageous. The volume of secondary government bond operations (including transactions conducted by non-residents) increased substantially, ahead of OFZ settlements via international depositary and clearing systems. Primary market The Russian government’s internal borrowing programme for 2012, approved by the Federal Law ‘On the Federal Budget for 2012 and for the Planning Period of 2013 and 2014’, envisaged large-scale government borrowing in the domestic market in 2012 through the issuance of government securities to finance the federal budget1. The Russian Ministry of Finance continued to diversify the portfolio of outstanding OFZ by maturity and to concentrate the bond issuance in benchmark issues2. The issuer offered three-year and new five- and eight-year bond issues and also, for the first time since the 2008 crisis, floated 15-year government bonds (Table 3.1.1.1; Addendum, Table 2) in an effort to solve the strategic task of increasing the OFZ portfolios’ duration to five years (Table 3.1.1.2). In 2012, 51 auctions for OFZ placements were held. Investor demand for the bond issues offered at the auctions varied from 0.1 times to 6.1 times of the nomi­ nal offer volume. Depending on the budget’s current re1

2

In June 2012, the Russian government’s internal borrowing programme for 2012 was revised towards the reduction of the net borrowing volume to 709.8 billion roubles (from 1,208.8 billion roubles as of early 2012), considering that federal budget revenues exceeded the revenue target. In 2012, the maximum nominal amount of the government securities issuance (OFZ and GSO) established by the Russian government totalled 1,843.7 billion roubles (compared with 1,744.8 billion roubles in 2011).

Table 3.1.1.1

Government borrowings via OFZ issues in 2012 (billions of roubles) Indicator Nominal volume of auction-based floats Redemptions

Plan

Outcome

1,236.7

794.6

400.4

401.2

8

8

Benchmark OFZ issues are comprised of issues with large volumes in circulation and standard redemption terms (3, 5, 10, 15 and 30 years).

Number of redeemed /partially redeemed issues Coupon payments, volume

216.8

216.1

Government bond issues repayable within these periods enjoy strong investor demand as they allow to hedge interest rate and foreign exchange risks.

Coupon payments, number

77

77

2012



Source: Russian Ministry of Finance, Bank of Russia.

13

Financial market review

Liberalisation of Government Securities Market The Guidelines of Russia’s State Debt Policy for 2012-2014 dictate that in the medium term, Russia must prioritise the development of the national debt market and its liberalisation. The key tasks related to this goal are the improvement of the government securities market’s infrastructure, the increase of its attractiveness and liquidity, the expansion of the investor base and the creation of comfortable and competitive conditions for various groups of investors. In order to accomplish these tasks, the government amended the legislation related to the registration and circulation of government securities in 2011; these amendments came into force in 2012. On 1 January 2012, OFZ and Russia’s Eurobonds were admitted for trading on the domestic stock exchanges. This allowed trade participants to hold a unified position on corporate and government securities for the purpose of settlements. It also widened the range of OFZ and Russia’s Eurobond market participants, and made it possible for more foreign investors to participate. In the OTC market, on 1 January 2012 investors were for the first time allowed to conduct transactions with government securities by opening depo accounts to register their rights to government bonds with Russian depositaries, bypassing intermediaries (sub-depositaries). The legislation introduced a new institution: the centralised registration of the rights to securities1. In addition, Russia unified its rules that govern custodian accounting and the procedure for making payments to investors in settlements for government and non-government securities. Starting from 1 July 2012, the Central Depositary was given the ability to open foreign nominee holder accounts for foreign organisations directly, which will simplify foreign investors’ access to the domestic government debt market2. These amendments helped expand the number of government bond market participants, including through measures to make investing in OFZ more attractive for foreign investors and raise OFZ market liquidity.  In compliance with Federal Law No. 414-FZ, dated 7 December 2011, ‘On the Central Depositary’. In November 2012, the FFMS of Russia made the National Settlement Depositary, a non-bank credit institution which is part of the Moscow Exchange Group, the country’s central depositary.

1

 In September 2012, the Russian Ministry of Justice registered FFMS Order No. 12-65/pz-n, dated 27 July 2012, ‘On Approving the List of Foreign Organisations Eligible to Open Foreign Nominee Holder Custodian Accounts at the Central Depositary’. This list includes 74 organisations, including Clearstream Banking S. A. (CBL) and Euroclear Bank S. A. / N. V.

2

quirements and the prevailing market situation, the OFZ issuer either placed OFZ with a premium or at a discount to their yields in the secondary market (Addendum, Table 2; Chart 3.1.1.3). Out of the total number of OFZ auctions planned by the Russian Ministry of Finance for 2012, five auctions (which had been slated for February, March and May) were cancelled by the issuer due to the unfavourable market situation, while one auction was not held due to the absence of investors’ bids (May). In October, one auction was not held because the auction yield bids were above the upper limit of the issuer’s yield range. The auctions held by the issuer sold 69.5% of the total volume of bonds offered for place-

14

ment (8.5%-100% of the declared placement volume on some bond issues). The nominal volume of outstanding government securities grew by 393.5 billion roubles in 2012 (Chart 3.1.1.1, Table 3.1.1.2); this resulted from the volume of the placements exceeding government bond redemption volumes (Table 3.1.1.1, Chart 3.1.1.2). The OFZ market portfolio duration increased in 2012 (Table 3.1.1.2, Chart 3.1.1.1). Secondary market The indicators characterising the activity of secondary domestic government bond market participants increased in 2012 compared with 2011 (Chart 3.1.1.4). The average daily volumes of exchangetraded transactions with OFZ in the main and negotiated deals trading modes in 2012 exceeded those registered in 2011 (Table 3.1.1.2). As secondary trade turnover grew faster than the portfolio of government bonds, the OFZ turnover increased in the period under review. In 2012, the structure of secondary trade in OFZ varied by maturity (Chart 3.1.1.5). During periods of growth in the demand for banking liquidity (in mid2012), the volumes of transactions with short-term OFZ (for terms of up to three months) were observed to expand. In 2012, the market participants’ interest in long-term OFZ (with a maturity of over 5 years) increased considerably.

2012

Capital market

Table 3.1.1.2

Main indicators of OFZ market Indicator Average issuance volume at OFZ auctions, billions of roubles Average maturity of OFZ placed at auctions, years OFZ market portfolio at nominal value, as of end of period, billions of roubles Average volume of outstanding OFZ issue, billions of roubles OFZ portfolio duration as of end of period, years (days) Average OFZ portfolio duration, years (days) Average OFZ turnover duration, years (days) Total OFZ turnover at actual prices, billions of roubles Including: in the main trading mode in the negotiated deals mode Average daily OFZ total turnover at actual prices, billions of roubles Including: in the main trading mode in the negotiated deals mode Average OFZ turnover velocity at actual prices, % Including: in the main trading mode in the negotiated deals mode OFZ yield** as of end of period, % p.a. Average OFZ yield**, % p.a.

2011

2012*

Growth in 2012*, %

22.3 5.5 2,803.3 67.5 3.8 (1,390) 3.6 (1,330) 3.1 (1,126) 3,010.4

22.4 8.2 3,196.7 82.6 4.3 (1,582) 3.9 (1,435) 3.6 (1,297) 4,029.6

0.5 49.4 14.0 22.3 13.8 7.9 15.2 33.9

778.2 2,232.1 12.1

768.1 3,261.6 17.1

-1.3 46.1 41.3

3.1 9.0 121.7

3.3 13.9 147.6

4.2 54.2 21.3

31.5 90.2 7.86 7.33

28.1 119.5 6.72 7.62

-10.6 32.4 -114 bp 29 bp

* As of 21 December 2012. ** Gross yield until redemption of the most liquid OFZ issues (RGBY). Source: Bank of Russia, Moscow Exchange, calculations by the Bank of Russia Research and Information Department.

The yield of the most liquid OFZ bonds (RGBY index3) continued to decline in January-March 2012, while the average maturity of OFZ issues included in the index portfolio was observed to increase (Chart 3.1.1.3). The downward trend of OFZ yield during this period reflected both infrastructural changes4 involving the government debt market’s liberalisation and investors’ growing interest in the instruments of emerging market economies which had remained unaffected by the eurozone’s debt problems. As credit institutions indicated a growing demand for liquid rouble resources in April, there was a correction of the downward trend in OFZ yield, which lasted until the beginning of June. OFZ yield in June changed within a horizontal band and starting from July they were observed to decline. The average OFZ yield increased in 2012 compared with the previous year. The RGBY index changed within a range of 204 bp in 2012, compared with 213 bp in 2011. At the end of December 2012, the OFZ yield was lower than at the end of 2011 (Table 3.1.1.2). 3

The Russian Government Bonds’ Effective Yield until Redemption is calculated by the Moscow Exchange using the average gross redemption yield method.

4

The unification of trading in government and corporate securities on the stock exchange contributed to the growth of trading activity and the enlargement of the number of OFZ market investors. Market participants were given the possibility to manage their positions flexibly because the stock exchange does not require them to deposit securities and funds in trading accounts in advance.

2012



The analysis of changes in the term structure of OFZ zero-coupon yield in 2012 considered the beginning of the period under review and also the yield annual extremes (Chart 3.1.1.6). The yield curve retained its upward slope during the entire period under review. The yield curve showed greater changes in the maturity segment of up to 10 years (the yield curve slope varied considerably) because instruments with these maturities account for about 80% of the overall volume of outstanding bond issues and over 90% of the total sec-

15

Financial market review

*** The OFZ market will continue to develop in 2013, in compliance with the Guidelines of Russia’s State Debt Policy for 2012-2014. This development will aim to improve OFZ market liquidity, widen the range of investors and stimulate investment demand. Considering that government borrowing in the domestic market will be the main source of federal budget deficit financing in the medium term, the regulator will continue to ensure an optimal ratio among government bonds in terms of duration and yield, as dictated by the situation in the Russian financial market.

3.1.2. Russia’s debt obligations circulating in the international market The situation in Russia’s sovereign bond market5 improved in 2012 compared with the previous year. The demand for the debt instruments of emerging market economies was observed to decline only in some periods. It happened when global investors reduced their risk appetite due to a destabilisation in the global financial market, which was caused by the sudden escalation of the sovereign debt crisis in the eurozone. The favourable situation in the world capital market in early 2012 allowed the Russian Ministry of Finance to successfully place three issues of 5-, 10- and 30-year Eurobonds in late March6, worth a total of $7.0 billion at par7, among a wide number of international investors Table 3.1.2.1

Russia’s government bonds circulating in the international capital market, as of 1 December 2012 Redemption Outstanding volume at par in original Coupon rate, Currency date currency, millions of currency units % p.a. Eurobonds floated via open subscription 24.06.98 24.06.28 USD 2,499.9 12.75 Eurobonds floated via closed subscription 29.04.10 29.04.15 USD 2,000.0 3.625 29.04.10 29.04.20 USD 3,500.0 5 4.04.12 4.04.17 USD 2,000.0 3.25 4.04.12 4.04.22 USD 2,000.0 4.50 4.04.12 4.04.42 USD 3,000.0 5.63 Eurobonds issued for GKO restructuring 24.07.98 24.07.18 USD 3,466.4 11 Eurobonds issued for the second restructuring of debts to the London club of creditors 31.03.00 31.03.30 USD 16,444.1 7.5 Domestic government bonds (issue 49001) (OVOZ) 10.03.11 10.03.18 RUB 90,000.0 7.85

Float date

ondary trade volume. The OFZ zero-coupon yield curve shifted down by late December 2012 compared with the beginning of January 2012. The yield curve slope decreased, suggesting that the market participants had assigned a lower risk premium to the medium- and long-term OFZ. Therefore, in 2012, the price parameters of borrowings in the OFZ market remained acceptable for both investors and the issuer allowing the latter to continue placing large volumes of medium-term issues and expand the supply of long-term OFZ issues. As a result, the volume of the government bond market portfolio and its duration increased. OFZ secondary trade turnover grew considerably and the turnover velocity of instruments increased. Some OFZ issues became a price guidepost for rouble-denominated regional and corporate bonds. The existing OFZ market structure allows investors to hedge the interest rate risks of their investments in government bonds using interest rate futures in the derivatives market (long-term interest rate futures on OFZ baskets).

16

Source: Russian Ministry of Finance.

Here and below, sovereign bonds of the Russian Federation mean Russia’s Eurobonds and domestic government bonds (issue 49001).

5 

 The technical placement of Russia’s Eurobonds involving settlements between investors and the issuer took place on 4 April 2012 on the London Stock Exchange.

6

 In compliance with the Programme for Russia’s State Foreign Borrowings in 2012, approved by the Federal Law ‘On the Federal Budget for 2012 and the Planning Period of 2013 and 2014’.

7

2012

Capital market

(Table 3.1.2.1). The investors’ demand exceeded supply by three times for both the 5- and the 10-year issues, and by almost four times for the 30-year Eurobond issue, allowing the Russian Ministry of Finance to cut the yield target for these issues in relation to the yields of the underlying asset8 after the bid book was closed. The issuer placed new Eurobond issues on the best-ever pricing terms, with yields of 3.325%, 4.591% and 5.798% p.a., respectively. The issuer serviced Russia’s external bond debt in compliance with the repayment schedule and in full. In March and September 2012, Russia repaid part of the principal on the Eurobond issue with a final maturity date in 2030. Coupon payments were made on all government securities circulating in the international financial market. According to data of the Russian Ministry of Finance, as of 1 December 2012, there were eight Russian Eurobond issues worth a total of $34.9 billion at par

 US Treasury bonds.

8

2012



and one OVOZ issue with a nominal value of 90.0 billion roubles circulating in the international capital market (Table 3.1.2.1). The secondary market for sovereign bonds which were floated by emerging market economies (including Russia) was favourable in 2012 as a whole. The quoted prices of Russia’s securities mostly demonstrated upward dynamics and were observed to fall only in periods of rising tension in the international financial market (Chart 3.1.2.1). The growth in the prices of Russian securities (considering the cumulative coupon income) ranged from 5.0 pp to 32.5 pp on various issues9 in 2012. The largest price increase was registered for Russia’s Eurobond issues which are due in 2028 and 2042. Yields on Russia’s Eurobonds were observed to fall between January and the first half of March 2012 and changed within a horizontal band until the end of April. A fresh flare-up of the European sovereign debt crisis caused a broad sell-off in the instruments of emerging

9

 According to data provided by Bloomberg.

17

Financial market review

market economies in May and a growth in yields on bonds, including those floated by Russia. Yields on Russia’s Eurobonds were observed to fall starting in June, and reached a record low by mid-October. The yields of Russia’s Eurobond issues fell by 136-251 bp from the end of 2011 to 1.18-4.20% p.a. as of late 2012 (Chart 3.1.2.2). The average indicator of the Russian Eurobond market portfolio, based on quoted prices, fell by 103 bp to 3.49% p.a. The yield curve shifted downward in 2012, retaining its positive slope (Chart 3.1.2.3). The analysis of the yield curve of Russian foreign currencydenominated bonds indicates that the risk premium on these instruments was observed to decline during the period under review. The changed assessment of the risk of investing in the bonds of emerging market economies also influenced the dynamics of spreads between their yields and the yields of the underlying asset (US Treasury bonds). The EMBI+10 and EMBI+ Russia spreads calculated by JPMorgan Chase demonstrated similar dynamics in 2012, with the EMBI+ Russia spread showing greater volatility (Chart 3.1.2.4). Emerging market sovereign bond spreads continued to narrow in January-March 2012. The aggravation of the European sovereign debt crisis in April – early June 2012 caused a sharp increase in the spreads, which was similar to the level registered in September-October 2011. The EMBI+ Russia and EMBI+ spreads widened substantially as the yields of the risk-free underlying asset and the yields of sovereign foreign currency bonds moved in opposite directions, evidencing the investors’ flight from risk to quality during this period. As market participants showed renewed interest in emerging market bonds, the EMBI+ Russia and EMBI+ spreads started to narrow. The analysis of  The EMBI+ (Emerging Markets Bond Index Plus) spread is the average weighted spread between the yields of emerging market sovereign Eurobonds and the yields of US Treasury bonds.

the EMBI+ Russia and EMBI+ spread levels reached by late 2012 (Table 3.1.2.2) suggests that international capital market participants significantly lowered their risk assessments for Russia’s instruments. Moreover, this reduction was more profound than the investment risk assessments of the bonds of most emerging market economies. In the domestic exchange market11, secondary trades with Russia’s Eurobonds due in 2028 and 2030 were held extremely irregularly, and no purchase/sale deals with other issues of Russia’s Eurobonds were registered in the period under review. As the credit institutions’ demand for liquidity increased, banks actively used Russia’s Eurobond and OVOZ issues in repo transactions with the Bank of Russia. The volume of repo operations with the Bank of Russia using these securities in 2012 more than tripled compared with 2011.

Table 3.1.2.2

Characteristics of sovereign foreign currency-denominated bonds of emerging market countries 2011

2012

EMBI+ Russia spread as of end of period, basis points

Indicator

321

128

-193

EMBI+ spread as of end of period, basis points

377

251

-126

Range of fluctuations of the EMBI+ Russia spread, basis points

258

225

-33

221

175

-46

Range of fluctuations of the EMBI+ spread, basis points EMBI+ Russia index as of end of period, points

Growth

633.33 741.06 107.73

EMBI+ index as of end of period, points

602.12 708.76 106.64

Average EMBI+ Russia index, points

621.16 686.70

65.54

Average EMBI+ index, points

574.62 654.66

80.04

Source: Thomson Reuters, data provided by JPMorgan Chase, calculations by the Bank of Russia Research and Information Department.

10

18

As of the end of 2012, all eight issues of Russia’s Eurobonds were admitted to trading on the Moscow Exchange.

11

2012

Capital market

Therefore, in 2012, after a two-year break, Russia floated a large amount of sovereign foreign currency-denominated Eurobonds, which were diversified in terms of maturity in a manner which was quite favourable for the issuer. This factor created the pre-requisites for Russian corporate borrowers to make active placements in the global debt market and shaped the benchmark yields for their new instruments. The prices of all of Russia’s Eurobond issues in the secondary market increased, while their yields fell to a historical low. The investors’ growing risk appetite in the second half of 2012 considerably narrowed the spreads between the yields of instruments offered by emerging market countries (including Russian debt instruments) and the yields of US Treasury bonds. *** In order to maintain Russia’s presence as a sovereign borrower in the global capital market and constant access to its resources, the issuer intends to continue the practice of limited sovereign Eurobond placements in 2013 and 2014, in line with the available demand, shaping a representative yield curve of borrowings in various currencies (first and foremost, US dollars and euros).

3.1.3. Sub-federal and municipal bond market In 2012, the Russian regional (sub-federal and municipal) bond market functioned amid a considerable improvement in most regional budgets. According to Federal Treasury data, the consolidated budgets of Russia’s regions posted a surplus of 370.4 billion roubles in the reporting period12 (compared with a deficit of 35.4 billion roubles in 2011). Therefore, the need of regional administrations for borrowed funds generally declined compared with the previous year. However, some Russian regions and municipalities still experienced the need for borrowings to finance both their budgets and their obligations on previous bond issues. Primary market The nominal value of the domestic bond debt of Russian regions and regional municipalities increased as of 1 December 2012 compared with 1 January 2012, according to data of the Russian Ministry of Finance (Table 3.1.3.1). As before, regional bonds were placed solely on the Moscow Exchange. A total of 28 new and three additional issues of regional bonds with a total nominal value of 114.7 billion roubles (Chart 3.1.3.1) were floated in 2012 (compared with 16 new issues and one additional issue placed in 2011 with a total value of 53.8 billion roubles). In 2012, all the regional issuers serviced their bonded debt on time and in full. Overall, 21 regional bond issues worth a total of 65.5 billion roubles at par were redeemed. As of the end of 2012, the portfolio of 12

As of 1 November 2012.

2012



regional bonds on the Moscow Exchange consisted of 92 bond issues from 36 issuers. As in the previous year, the city of Moscow (Russia’s largest regional borrower) did not make new bond placements in 2012. Despite this, Moscow’s bonds continued to prevail in the regional debt market, although their share in the total market portfolio of regional bonds contracted by 6 pp from 2011 to 44% (Chart 3.1.3.2). The share of bonds used by the Moscow Region also decreased, while the shares of other large regional issuers – the Samara and Nizhni Novgorod Regions – increased. In the absence of Moscow as the largest issuer in the primary regional debt market, the city of St Petersburg, another issuer with a high credit rating, floated bonds in the market in 2012 after a two-year break. Bond placements in the primary market had maturities ranging from 3.0 to 5.5 years. The average size of bond issues registered in 2012 equalled 4.5 billion roubles compared with 3.7 billion roubles in 2011. Record large bond placements for issuers with speculative-grade credit ratings were made by the Krasnoyarsk and Krasnodar Territories, as well as the Samara and Nizhni Novgorod Regions (Addendum, Table 3). Credit institutions’ demand for bond offers had a positive effect on the primary regional bond market. Regional bonds continued to generate interest among banks, combining an acceptable level of reliability with Table 3.1.3.1

Domestic regional bond market (billions of roubles) Segment Sub-federal bonds

1.01.10 1.01.11 1.01.12 1.12.12 377.75

407.23

343.88

345.40

0.4

7.12

8.27

7.18

9.38

30.8

Municipal bonds Total

Growth in JanNov 2012, %

384.87 415.50 351.05 354.79

1.1

Source: Russian Ministry of Finance.

19

Financial market review

yield levels that exceeded OFZ yield with comparable maturities. The bonds offered by the largest regional issuers had sufficiently high liquidity and could be used for repo transactions, which made them attractive for banks (Chart 3.1.3.7). The volume of repo operations with the Bank of Russia using regional bonds almost doubled in 2012 compared with 2011. Although Russian regions regained the right to external borrowings13 from 1 January 2011 to finance their budget deficits and repay their foreign debt (given their compliance with certain terms), none of them entered the international capital market in 2011-2012. As the Moscow Region redeemed its 7.0 billion-rouble Eurobond issue on 24 December 2012, the market portfolio of Russian regional Eurobonds decreased and as of the end of 2012 it was limited to one Moscow Eurobond issue worth 407 million euros due in 2016. Secondary market The Moscow Exchange remained the leading secondary trading floor for sub-federal and municipal bonds in 2012. While secondary trades in the bonds of most issuers intensified, including bonds of large issuers such as the Nizhni Novgorod Region, Krasnoyarsk Territory and the Republic of Sakha (Yakutia), the volume of trades in the bonds of Moscow, the Moscow and Samara Regions contracted in 2012 compared with the previous year. As a result, the regional bond secondary trade total turnover on the Moscow Exchange dropped to 458.1 billion roubles from 487.4 billion roubles in 2011. The regional bond average daily trading volume

decreased by 8.0% in 2012 from the previous year to 1.8 billion roubles. As the volume of trades in the Moscow bonds declined (of the 17 bond issues circulating in the market as of early 2012, two issues worth a total of 30 billion roubles at par were redeemed, while no new bond issues were placed in the market), the share of operations with these bonds in the total secondary trade turnover was observed to decrease but remained relatively high, at 26.7%, compared with 42.5% in 2011 (Chart 3.1.3.3.; 3.1.3.4). Correspondingly, the positions of bonds floated by other issuers slightly increased. The average duration of the regional bond portfolio equalled 2.5 years in 2012, with the maturity of certain bond issues not exceeding 10.4 years. Bonds with maturities of less than 5 years, which make up 96% of the regional bond portfolio, accounted for over 90% of overall secondary trade turnover. The most trade turnover was registered for bonds with maturities ranging from 4 to 5 years (Chart 3.1.3.5).

The limits on Russian regions’ foreign currency borrowings were fixed by Article 104 of the Budget Code of the Russian Federation and applied to all constituent members of the Russian Federation from 1 January 2008 to1 January 2011. These limits remain for certain regions, including: those where the share of interbudget transfers from the federal budget is calculated to exceed 5% of their revenues in the consolidated budget during two of the last three reporting years, and for Russian regions which have ratings assigned by less than two leading international rating agencies.

13

20

2012

Capital market

As the primary market registered a minimum supply of regional bonds in January-April 2012, the demand of market participants for these bonds was satisfied in the secondary market. Investors’ growing interest in risky assets (particularly regional bonds) during this period caused their prices to rise in the secondary market: the yield on the most liquid regional bonds (the Cbonds-Muni index14) tended to decline (Chart 3.1.3.6). In May-June 2012, the sufficiently large supply of regional bonds in the primary market (with the yields that exceeded the comparable bond issues yields in the secondary market) and the growth of money market rates reversed the downward trend in regional bond yields. In July-November 2012, the regional bond yield ranged within a relatively narrow horizontal band. The average yield on sub-federal and municipal bonds grew by 0.4 percentage points in 2012, compared

The average weighted effective yield to maturity or to the offer of the index portfolio of regional bonds is calculated by Cbonds.ru.

14

2012



with the previous year, to 8.1% p.a. The range of the Cbonds-Muni index fluctuations narrowed to 0.7 pp in 2012 from 1.7 pp in 2011. The regional bond yield fell by 0.3 pp as of the end of 2012 from the same period in 2011 to 8.0% p.a. Therefore, the structure of the regional bond market by issuer became more diversified in 2012, in comparison with the previous year, and the maturities of borrowings increased. Several Russian regions with speculative-grade credit ratings managed to float record bond volumes for their rating category. Primary placements of regional bonds and the portfolio of outstanding bonds expanded considerably year on year, while secondary trade volumes decreased. The regional bond yield in the secondary market ranged within a fairly narrow horizontal band. *** The volume of lending from the federal budget to the regional budgets is slated to be reduced substantially15 in 2013-2014. Therefore, the Russian regions will need to increasingly rely on the market in order to borrow funds. The regions’ necessity to maintain solvency will create conditions for them to expand the supply of their debt securities, which will tighten competition for borrowed funds in the domestic market. At the same time, the institutional investors’ unsatisfied demand for the debt instruments of regional issuers (which has been observed in the past few years) has created prerequisites for growth in the volume of the regional bond market and an increase in its liquidity. The yield of regional bonds will remain attractive for investors.

In accordance with the Guidelines of Russia’s State Debt Policy for 2012-2014.

15

21

Financial market review

3.2. Corporate debt market 3.2.1. Domestic corporate bond market Primary market In the domestic corporate bond market, borrowers placed a record high volume of securities in JanuaryNovember 2012. During the year, the bond issuance activity of companies in various sectors of the economy varied significantly, depending on the market situation and their demand for investments (Chart 3.2.1.1). In February-April 2012, the corporate bond market registered a high volume of placements. During this period, the growing supply of corporate bonds with moderate risk and attractive yield increased investors’ interest in primary market operations. In May-June 2012, corporate borrowers reduced the number of issues considerably due to the impact of negative external and internal factors. Some corporate bond floats which had been planned for this period were postponed due to the deterioration of the terms of borrowing. The favourable corporate bond market situation in JulyOctober 2012 was conducive to the recovery of the borrowers’ issuance activity. Investors’ strong demand for new issues and relatively low yields in the secondary market prompted issuers to enter the primary market. In October 2012, corporate bond placements in the primary market reached their record high. A total of 219 new and two additional corporate bond issues with a total nominal value of 1,051.5 billion roubles were placed on the Moscow Exchange in January-November 2012 (190 new corporate bond issues worth a total of 924.3 billion roubles were floated in 2011). Exchange-traded bonds accounted for 39.7% of the overall volume of new bond issues placed on the Moscow Exchange. In the period under review, this instrument was used by 57 borrowers who placed 104 issues with a total value of 417.7 billion roubles at par.

22

Table 3.2.1.1

Parameters of new corporate bond issues placed on the Moscow Exchange 2011

JanuaryNovember 2012

Average first coupon rate, % p.a.

8.7

9.6

Average stated maturity, years

6.7

6.2

Average bond issue volume, billions of roubles

5.0

4.9

Indicator

Source: Moscow Exchange, Cbonds.ru, calculations by the Bank of Russia Research and Information Department.

The intensive issuance of exchange-traded bonds reduced the average stated maturity of corporate bonds placed on the Moscow Exchange. At the same time, actual repayment periods of corporate borrowings remained shorter due to the existence of bond buy-back offers before their redemption dates. In the OTC market, ten corporate bond issues with a total value of 17.9 billion roubles were placed (Addendum, Table 4). The issuers’ readiness during the placement of new bond issues to offer a premium to the yield of similar issues in the secondary market stimulated investors’ demand for securities, on the one hand, but on the other hand made funding more expensive (Table 3.2.1.1, Chart 3.2.1.2). Despite this, the corporate bond market remained attractive as a source of funds for companies in the real sector, as well as among credit institutions and financial companies. In January-October 2012, the first coupon rates of corporate bonds were lower than the interest rates on bank loans with comparable maturities. The spread between the average monthly rate on rouble loans to non-financial organisations with maturities ranging from one year to three years and the average monthly first coupon rate on corporate bonds varied between 0.03 pp and 2.62 pp in the period under review.

2012

Capital market

The bulk of corporate bonds placed in the primary market in January-November 2012 consisted of the issues of reliable borrowers. Specifically, the bonds of investment-grade issuers (with ratings of AAA, BBB- / BBB+) accounted for 46% of total corporate placements on the Moscow Exchange, while speculative-grade bonds (with the ratings of BB- / BB+, B- / B+) made up 40% (Chart 3.2.1.3). The investors’ increased demand for these securities was explained not only by their attractive yields and the issuers’ international credit ratings, but also by the possibility to use most of them as collateral in refinancing operations with the Bank of Russia. For small companies, it was difficult to enter the corporate bond market. The share of corporate bonds floated by issuers without credit ratings in the structure of primary placements in January-November 2012 was half what it had been the previous year. At the same time, the number of defaults by low-credit-quality corporate issuers continued to decrease (Chart 3.2.1.4). A total

2012



of 18 defaults and 15 technical defaults on corporate bonds were registered in January-November 2012, compared with 72 defaults and 69 technical defaults in 2011. Credit risk was the highest for the bonds of issuers which had experienced difficulties servicing their issues in 2008-2011. In January-November 2012, the credit quality of the total corporate bond portfolio in the domestic market improved due to large-scale bond placements by reliable borrowers. The portfolio grew to 4,057.0 billion roubles at par as of the end of November 2012 (Chart 3.2.1.5). The number of bond issues continued to increase, along with a contraction in the number of issuers. As of the end of November 2012, the total corporate bond portfolio consisted of 859 bond issues floated by 338 issuers, compared with 770 bond issues floated by 349 issuers as of the end of 2011. The bonds placed by credit institutions and financial firms continued to hold the largest share in the structure of the corporate bond portfolio by sector (Chart 3.2.1.6).

23

Financial market review

Secondary market Secondary market activity remained high in January-November 2012. The total and average daily volumes of corporate bond secondary trade on the Moscow Exchange declined by 1.8% and 5.6% to 4,650.3 billion roubles and 19.8 billion roubles, respectively, compared with January-November 2011 (Chart 3.2.1.7). Investors preferred to build their bond portfolios using the liquid securities of reliable issuers (Table 3.2.1.2). The corporate bonds of the 20 leading issuers accounted for 50% of the overall trade turnover in January-November 2012 (54% in 2011). At the same time, during periods of improvement in the domestic financial market, the turnover velocity of corporate bonds offered by issuers which had lower credit ratings was observed to increase. Foreign investment in Russian corporate bonds was short-term in nature in January-November 2012. The persistence of high uncertainty in external financial markets compelled non-residents to pull their money Table 3.2.1.2

Corporate bond secondary trade on the Moscow Exchange by issuer in January-November 2012 (%) Russian Railways FGC UES Russian Agricultural Bank VTB Bank Vnesheconombank MTS Mechel Bashneft Joint-Stock Oil Company Gazprom Neft VimpelCom Bank Zenit Gazprombank Novolipetsk Steel Nomos Bank UTair-Finance Credit Bank of Moscow VEB-Leasing EvrazHolding Finance Transneft Home Credit & Finance Bank VimpelCom-Invest Bank VTB 24 Alrosa Promsvyazbank Metalloinvest Holding Company AHML Other issuers with a share of 0.5-1.0% (25 issuers) Other issuers with a share of 0.2-0.5% (43 issuers) Other issuers with a share of less than 0.2% (239 issuers) 333 issuers

9.34 4.69 4.40 4.10 2.51 2.20 2.20 2.13 2.10 1.81 1.73 1.67 1.64 1.46 1.40 1.37 1.36 1.30 1.25 1.24 1.21 1.19 1.14 1.07 1.04 1.01 17.65 13.74 12.04 100.00

out of riskier assets offered by emerging markets and invest them in the most reliable instruments. In the domestic corporate bond market, the sales prevailed in non-residents’ secondary trade deals in the period under review (Chart 3.2.1.8). The sole exceptions to this trend were registered in February and August, when the foreign investors’ growing risk appetite contributed to the inflow of their funds into the secondary market of Russian corporate bonds. Overall, net foreign capital outflow from the secondary corporate bond market of the Moscow Exchange totalled $3.2 billion in JanuaryNovember 2012 ($2.5 billion in 2011). The share of non-residents’ operations in the corporate bond secondary trade turnover on the Moscow Exchange varied from 12.5% to 21.1% in the period under review. The corporate bond yield varied within a wide horizontal band in 2012, with several time intervals demonstrating different yield dynamics (Chart 3.2.1.9). The improvement of the world capital market and the rise of world oil prices in the period between January

Source: Moscow Exchange, calculations by the Bank of Russia Research and Information Department.

24

2012

Capital market

and the first half of March 2012 contributed to growth in the quotes of risky assets, including Russian corporate bonds. The quotes of bonds floated by Russian issuers resumed growing after a sharp decline in AugustDecember 2011. The yield on the most liquid corporate bonds mostly tended to fall between January and the first half of March 2012 until it reached 8.31% p.a. as of 15 March 2012, the lowest level for the year. Subsequently, it gradually started to climb and registered its highest level (9.48% p.a.) on 28 June 2012. The Russian corporate bond yield started to fall in July-October 2012 due to the fairly stable domestic financial market situation as well as positive news from abroad: the European Central Bank announced plans to purchase the sovereign bonds of problem eurozone countries and the US Federal Reserve launched a new programme of quantitative easing. Moreover, the sentiments of domestic corporate bond market participants improved in connection with the forthcoming launch of the central depositary. The central depositary is designed to make the accounting system of the rights to securities more transparent, and allow foreign clearing companies to service transactions with Russian bonds. In November 2012, the corporate bond yield ranged within a narrow horizontal band. The average yield of the most liquid corporate bonds grew to 8.8% p.a. in January-November 2012, from 7.6% p.a. in January-November 2011. The duration of the corporate bond index portfolio fell to 1.5 years as of the end of November 2012 from 2.1 years as of the end of 2011. The corporate bond yield curve shifted both ways in 2012, along with the variation of its slope (Chart 3.2.1.10). The bonds of credit institutions and financial companies continued to constitute the largest sectoral segment of the secondary rouble-denominated corporate bond market, which corresponded to the sectoral structure of the corporate bond portfolio in the domestic market. These instruments accounted for 44.9% of

2012



the total corporate bond secondary trade volume on the Moscow Exchange in January-November 2012 (Chart 3.2.1.11). As for the instruments of issuers from the non-financial sector, the largest share in the secondary trade on the Moscow Exchange in January-November 2012 was held by the bonds of companies which operated in sectors such as metallurgy, oil and gas, communications, electric power and railway transport. High global risks persisted, which persuaded investors in January-November 2012 to invest their money in the corporate bonds of reliable borrowers to minimise their losses from a possible deterioration of both the external and domestic markets. Corporate bond placements in 2012 reached their record high and the value of corporate bonds circulating in the domestic market exceeded 4.0 trillion roubles. The yields on corporate bonds in the primary and secondary markets fluctuated near the level they had reached by the end of the previous year.

25

Financial market review

*** The domestic corporate bond market in 2013 will be further influenced by high external risks; these are primarily related to the slowing of global economic activity and the persisting sovereign debt crisis in the eurozone. These factors, as well as a possible depreciation of the national currency, may cause a decrease in the investment attractiveness of corporate bonds. At the same time, the continued implementation of the QE programmes abroad may increase investors’ risk appetite and stimulate the inflow of their funds into the Russian corporate bond market.

3.2.2. Promissory note market In 2012, Russian companies and banks continued to use promissory notes along with other debt instruments (corporate bonds and loans). Just as before, their yield was influenced by the factors that determined the yields of other Russian debt instruments with comparable maturities and risk level. Specifically, the yield on oneyear notes in the secondary market (mostly comprised of the liquid promissory notes of the largest issuers) was comparable with the yields on the most liquid corporate bonds (Chart 3.2.2.1). The yield on these notes had slightly increased by the end of the period under review (to 9.2% p.a. in November). Credit institutions remained major players in the promissory note market in 2012: they prevailed among promissory note issuers and represented a considerable proportion of the promissory notes’ holders. That is why the promissory note market depended considerably on the situation in the banking sector. The portfolio of promissory notes discounted by banks grew by a third from early 2012 to 311 billion roubles, while the volume of notes placed by banks increased by one-fourth to 1,064 billion roubles as of the same date. This was largely due to the offer of rouble-denominated notes

26

with a term of up to one year and long-term foreign currency-denominated notes (Chart 3.2.2.3). The portfolios of discounted bank and non-bank promissory notes continued to differ substantially in 2012, according to their credit quality. The credit risk of banks’ notes was considerably lower, compared with the notes issued by non-bank organisations. According to bank reporting data, the share of overdue notes in the portfolio of bank notes discounted by banks did not exceed 0.3% in 2012 (Chart 3.2.2.6). At the same time, the credit risk posed by notes issued by non-bank institutions was observed to grow. The average annual share of overdue instruments in the portfolio of nonbank promissory notes discounted by banks increased to 3.9% in 2012 from 3.7% in 2011. The differences in the risk level of the notes of the major groups of issuers caused the divergence in the interest rates of these types of promissory notes to continue (Chart 3.2.2.2).

2012

Capital market

The structure of the portfolio of notes discounted by banks did not undergo any considerable changes by issuer in 2012. This portfolio was dominated by bank notes, the share of which exceeded 85% (Chart 3.2.2.5). At the same time, the currency structure of the promissory note portfolio changed noticeably, with the share of foreign currency-denominated notes rising to 19.3% by October from 8.6% in early 2012 (Chart 3.2.2.4). The uncertainty of exchange rate expectations throughout 2012 led to demand being maintained among investors for foreign currency-denominated papers. Bank promissory notes in a foreign currency comprised about a third of all notes placed in 2012 (Chart 3.2.2.3). Activity in the secondary promissory note market remained at a medium level in 2012. The data of the RVS-Promissory Notes trading system show the considerable excess of sale quotes over bid quotes.

2012



Therefore, the promissory note market in 2012 was largely influenced by the uncertainty of exchange rate expectations and the yield dynamics in adjacent segments of the debt market. *** In 2013, the issuance of promissory notes will remain an alternative method for raising funds, mostly for short periods. The yields on promissory notes will remain at a comparable but slightly higher level than the yields on other debt instruments (except for the most liquid notes of large issuers) due to the higher risk level associated with these instruments.

3.2.3. Russian corporate Eurobonds The Russian corporate Eurobond market condition improved in 2012 compared with the previous year. The successful placement of Russia’s sovereign Eurobonds in March provided benchmark yield for Russian Eurobonds across a wide range of maturities, and facilitated the entry of corporate issuers, including those with speculativegrade ratings, into the foreign capital market. Quasisovereign borrowers (state corporations and the largest Russian banks) placed most of their Eurobond issues in 2012 without any yield premium to the market, or this premium was minimal. Basically demand for Russian corporate new Eurobond issues considerably exceeded the supply. The initial yields on new Eurobond issues tended to decline and the Eurobonds were placed on more advantageous terms for the issuers. External corporate bond debt increased considerably in 2012. As opposed to previous years, the volume of outstanding banks’ Eurobonds grew faster than the volume of Eurobonds floated by nonbank companies. As of the end of November 2012,

27

Financial market review

the portfolio of Russian corporate Eurobonds16 totalled $148.9 billion at par17 compared with $115.4 billion as of the end of 2011 (Chart 3.2.3.1). The share of credit institutions’ securities in the portfolio increased from 38.7% as of the end of 2011 to 46.2% as of the end of November 2012. The number of outstanding Russian corporate Eurobond issues exceeded 300 as of the end of the period under review (compared with 240 issues as of the end of 2011). The issuance activity peaks were in July and October 2012 when their Eurobond floats totalled $7.6 billion and $9.4 billion, respectively. The placement of corporate Eurobonds in March together with sovereign Eurobonds, registered the record monthly high, totalling $10.3 billion (Chart 3.2.3.2.). The issuers’ increased activity for the placement of Eurobonds in October (with the largest share of these Eurobonds issued by the banking sector) was mainly due to the publication of the Bank of Russia’s draft documents on the transition to new capital and capital adequacy calculations based on the Basel III Framework18. The balance of corporate borrowing through the placement of Eurobonds more than tripled in 2012, growing from $9.8 billion in 2011 to $34.2 billion in January-November 2012. The number of new Eurobond issues more than doubled, from 43 to 99 issues, respectively. As in the previous year, borrowings were Rouble- and foreign currency-denominated debt securities floated by Russian borrowers outside Russia in compliance with international law (except for the debt securities of the Russian Federation, Russian regions and municipalities).

16

17

Source: Cbonds.ru.

The Bank of Russia Draft Ordinance ‘On the Procedure for Credit Institutions Calculating their Equity Capital in Compliance with Basel III’ and the Bank of Russia Draft Ordinance ‘On the Calculation of Equity Capital Adequacy Indicators by Credit Institutions in Compliance with Basel III’, and also notes to them are posted on the Bank of Russia’s website in the section ‘Information and Analytical Materials’ (http://www.cbr.ru / analytics / standart_acts / projects).

mostly denominated in US dollars (74 issues, worth a total of $40.7 billion). Russian companies borrowed by means of Eurobonds in euros, Swiss francs, Singapore dollars, Chinese yuan and Russian roubles (Addendum, Table 5). The largest borrowings in 2012 were made by VTB Bank and Sberbank (Addendum, Table 5). Analysts and experts drew special attention to the three-year Eurobonds of VTB Capital, which were denominated in Turkish lira and placed on the Istanbul Stock Exchange. VTB Capital was the first foreign issuer to float debt on this exchange. The Eurobonds placed by VTB Capital are regarded as long-term securities in the Turkish stock market and the issuer’s high credit rating allowed the company to raise funds with a minimum spread over the yield of Turkish government bonds. As Russia develops bilateral economic relations with foreign countries, Russian corporate borrowing in the national markets of Russia’s trading partners in their national currencies is becoming an increasingly promising area. Russian corporate borrowers floated their Eurobonds at the same five stock exchanges in 2012 that they had in the past. The Irish Stock Exchange retained its leading positions in terms of the number of Eurobond placements, while many issuers also floated Eurobonds in the OTC market: 37 and 26 new issues, respectively (Addendum, Table 5). Russian corporate borrowers’ interest in Eurobond placements on the Irish Stock Exchange was justified. Despite the issuers’ comparable underwriting expenses19, the total cost of placement on the Irish Stock Exchange together with other flotation costs (listing application fees, tranche listing fees, etc.) may be lower than the cost of flotation on the London

18

28

Experts estimate that underwriting expenses make up 0.20% of the total issue float on the London Stock Exchange and 0.25% on the Irish Stock Exchange.

19

2012

Capital market

Stock Exchange20, which remains popular among Russian issuers. Moreover, the companies established in Ireland for the purposes of floating securities on the local stock exchange benefit from the country’s lower taxes21 (Ireland’s profit tax is 12.5%, which is considerably lower than profit taxes across Europe), while Ireland ranked 11th in terms of global investment appeal in 2011. The global investors’ persistent interest in Russian securities in 2012 contributed to the relatively low cost of borrowing for Russian companies, while the average term of borrowed funds increased further. The rates of new Eurobond placements by certain issuers in 2012 were close to the level registered in the previous year. The average weighted maturity of new corporate Eurobond issues in 2012 reached six years. The maximum maturity of borrowings in 2012 was shorter than it had been in 2011 (10 years as against 20 years). At the same time, a whole number of Russian corporate issuers, including borrowers with non-investment-grade ratings, were able to raise funds for a term of 10 years. In July 2012, VTB Bank placed perpetual (permanent) Eurobonds worth $1 billion, an unprecedented event for Russian issuers that should be mentioned specifically (in October, this issue was enlarged to $2.25 billion). The bonds were issued with a call option22 available on 6 December 2022 and every coupon payment date thereafter. The The United Kingdom sets no requirements for the national identity of issuers wishing to list on the London Stock Exchange: companies registered in jurisdictions other than the British jurisdiction may list there.

20

Most frequently, Russian companies raise funds in foreign markets through a Special Purpose Vehicle (SPV), which issues bonds on its own behalf but against the guarantee of a parent company acting as the final borrower. An SPV is normally created in countries that feature the preferential taxation of securities incomes, which allows borrowers to reduce the costs of servicing debt. The availability of a double taxation agreement with Russia is also taken into account.

21

22

A call option allows the issuer to buy back the debt obligations fully or partially.

2012



demand for the first Russian issue of corporate perpetual Eurobonds exceeded the supply by over 1.5 times and was floated without a premium over the market. The parameters of the perpetual Eurobond issue allow the issuer to include it in Tier 1 capital, in compliance with the criteria of Basel III. In October 2012, Gazprombank also floated perpetual Eurobonds with a call option which is exercisable in 5.5 years. The improved credit quality of Russian corporate borrowers was evidenced in the absence of defaults on corporate Eurobonds in January-November 2012 (in 2011, one default and one technical default on a coupon payment were registered). The yield dynamics on Russian corporate Eurobonds with investment- and speculative-grade ratings almost did not differ in the secondary market in 2012: the downward yield trend prevailed during most of the period under review (Chart 3.2.3.3). At the same time, speculative-grade Eurobonds demonstrated slightly higher price volatility than investment-grade securities, while their yields declined more intensively. The yield on investment-grade Eurobonds fell by 2.0 pp to 4.2% p.a. as of 30 November 2012, while the yield on non-investment-grade Eurobonds declined by 2.8 pp to 6.0% p.a. Therefore the negative consequences of the global economy’s destabilisation in the second half of 2011 were fully offset in this segment of the bond market during 2012, while the yield on corporate investment-grade Eurobonds from July 2012 were steadily below the minimum levels registered in 2011. The situation in the international capital market in 2012 also reflected fluctuations of the CDS premium23, an indicator of investment risks in the Eurobond market that responded to changes in the global financial

23

The CDS premium is a premium on credit default swaps.

29

Financial market review

market with downward or upward movements24 (Chart 3.2.3.4). The dynamics of five-year CDS-premiums on Russian borrowers’ external liabilities mainly followed the dynamics of the bi-currency basket and were inverse to the world oil price trend in the period under review: the period of rouble depreciation in the time of declining world oil prices in May was accompanied by a surge in CDS premiums. At the same time, despite a lengthy fall of CDS premiums in 2012 (from early June to late September), they failed to reach the first half of 2011 levels. Consequently, by the end of 2012, foreign creditors and investors assessed the risks of investing in the Russian economy as higher than they had been in the first half of 2011. Therefore, the year 2012 was largely positive for Russian corporate borrowers. Companies with investment-grade ratings and ratings in the upper speculative-grade class actively borrowed in the global capital market. The Russian corporate Eurobond market demonstrated two new aspects in its development: foreign investors were offered Russian corporate perpetual Eurobonds, and Russian companies started to use local foreign markets for their borrowing.

3.3. Equity market Global financial market instability, highly volatile world commodity prices and global investors’ changing attitudes toward risk continued to exert heavy pressure on the Russian equity market in 2012. These factors caused considerable fluctuations in the prices of Russian shares, preventing their recovery after a plunge in the second half of 2011. The growth of equity prices was also partly restrained by internal factors, particularly, by a slowdown in business activity in the real sector of the Russian economy in 2012. These factors made Russian assets less attractive for investment. In this situation, the market risk premium in the Russian equity market remained at its July-December 2011 level, only exceeding it during May and June of 2012 (Chart 3.3.1). Russian MICEX and RTS indices’ volatility was lower than in the period that witnessed the highest tension in the domestic stock market: AugustNovember 2011. However, it exceeded the volatility level registered in the relatively calm period in the first half of that year (Chart 3.3.2). As conservative Russian and foreign investors lacked sufficient medium-term and long-term incentives to resume the purchase of the highly-risky assets represented by Russian equities, they pursued cautious tactics, preferring to invest in less risky instruments, including rouble- and foreign currency-denominated bonds. In the medium term, measures launched by

foreign regulators in early autumn 2012 to stimulate economic growth and stabilise the global financial market will help adjust this trend. The stimulus measures will also contribute to the growth of global investors’ risk appetite and the inflow of their funds into emerging markets, including the Russian market (see the box: ‘Effects of the Fed’s QE Policy on the Russian Equity Market’). As before, Russian equity prices in 2012 were largely influenced by the direction and the amount of volatile speculative capital flows of domestic and foreign investors (in the absence of a stable inflow of long-term investment into the Russian stock market). In January, February and June, the inflow of non-residents’ funds into the secondary market contributed to the growth of equity prices, while foreign capital outflow continued in the remaining months. In March-June, September and October, the negative effect of capital outflow on the Russian equity market was intensified by the downward correction of world oil prices, which

CDS premiums on various underlying instruments are determined by the electronic trading system of CMA company, which is part of the CME Group integrating the four major exchanges in the US (CME, CBOT, NYMEX and COMEX).

24

30

2012

Capital market

caused a considerable fall in equity prices. However, non-residents’ monthly capital outflow, as a rule, was significantly lower than in the previous year. As a result, despite a net non-residents’ capital outflow from the secondary equity market of the Moscow Exchange (Main Market) in 2012, this outflow contracted by a factor of 3.7 from the previous year to 4.2 billion US dollars (Chart 3.3.3). The share of non-residents’ operations in the total equity secondary trade turnover on this trading floor continued to grow and reached 37% on average in 2012 as against 32% in 2011. Russia’s MICEX and RTS indices fluctuated within a broad horizontal band in 2012. As before, the index change was closely correlated with changes in world oil

prices (the correlation coefficient was close to 1). Along with the Russian stock indices, similar dynamics were demonstrated by the stock indices of developed countries, as well as Russia’s partners in the BRICS group. At the same time, Russia’s RTS index continued to demonstrate the greatest volatility among them. The MICEX index grew by 5.4% from the end of December 2011 to close at 1,477.44 points as of 21 December 2012, while the RTS index increased by 9.4% to 1,512.18 points (Chart 3.3.4). The stock indices of developed and emerging markets also demonstrated positive growth during the period under review, increasing by 8.0-30.1% (Chart 3.3.5). The sole exception was the Chinese stock index, which fell by 1.4%.

Effects of the Fed’s QE Policy on the Russian Equity Market The deeper integration of the emerging markets, including Russia, into the world capital market has increased their dependence on global investors’ capital flows and made the local markets more vulnerable to external financial shocks. External shocks (both positive and negative) are transmitted to the domestic stock market through the global investors’ changing attitudes to risk, therefore causing considerable shifts in market trends. Positive shocks arise from the measures that are taken by the monetary authorities of developed countries to counteract the crisis and stimulate economic growth in the post-crisis period. This can be illustrated by the QE policy1, which increases the money supply in the global financial system and stimulates the demand for financial assets as well as the growth of their prices. In order to assess the impact of the Fed’s QE policy impulses on the global investors’ behaviour with regard to the Russian equity market, two indicators were applied: capital flows of funds2 focused on investment in Russian equities, and the equity market risk premium3. The econometric analysis showed that the Russian stock indices demonstrated growth with an average lag of several weeks following the Fed’s measures, with the effect of these policies persisting for 13-17 weeks. In this situation, upward price trends in the world oil market continued to have the largest impact on the dynamics of the Russian stock indices. Russian equity market growth was also driven by other factors: the slump in Russian equity prices during the crisis of 2008-2009 and stimulus measures by other foreign regulators, including European policy-makers. As a result, a price bubble emerged in the Russian equity market between November 2008 and April 2011, the size of which can be estimated at 262%4. 1

 The direct purchase of government and corporate securities by monetary authorities in the financial markets.

2

 Weekly data on the net balance of private investment funds’ capital flows provided by Emerging Portfolio Fund Research Inc. The data show the amount of money accumulated by these funds for investment in Russian equities.

3

 The equity market risk premium is calculated as the difference between the returns on equities included in the RTS index calculation base and the OFZ zero-coupon yield. The difference between the extrema (the minimum and the maximum) of the MICEX index. This gap for the RTS index amounted to 326% in the post-crisis period.

4 

2012



31

Financial market review

In 2012, global investors’ short- and medium-term strategies were more determined by their expectations of stabilisation and stimulus measures than by foreign regulators’ stimulus announcements (by the ECB on 6 September and by the Fed on 13 September). In the period between June and the first ten days of September, every segment of the global stock market demonstrated upward trends (the equity price indices of developed countries grew by 5-17% over this period, while the indices of most emerging countries increased by 6-24%). The Russian equity market remained among the leaders in terms of equity price growth, which was fuelled by the rise in global oil prices from the third ten-day period of June. At the same time, the effect of QE3 was less pronounced than the effect of the previous two QE rounds: a local upsurge in Russian equity prices in mid-September was followed by a fall which lasted until mid-November. This was partly due to lingering uncertainty over both the prospects for the development of financial markets (as the sovereign debt problems of some eurozone countries remained unresolved) and the prospects of the entire global economy. Investors were reluctant to buy highly risky assets and preferred to invest in bonds and real estate. However, considering that the new QE round has no time limits, there is still a probability that a local price bubble will emerge in the Russian equity market in the medium term.

The absence of a steady upward trend in equity prices signified that there were no signs of a new asset price bubble in the Russian equity market in 2012 (See the box: ‘Is There a Bubble in the Russian Equity Market?’). The number of Russian issuers announcing public share offerings (IPOs and SPOs) in Russia and abroad continued to grow in 2012 amid the persisting heavy demand for funding. However, only a few Russian issuers were able to implement these plans in 2012 due to world stock market instability and the investors’ moderate demand for high-risk assets. Most of the planned share offerings were postponed for an indefinite period of time, including VTB’s. VTB Bank is one of Russia’s two largest partially state-owned banks; its SPO was scheduled for 2012 as part of the issuer’s privatisation25 programme. Sberbank, the banking sector’s biggest issuer, delayed its SPO a number of times due to the unfavourable market. It was only able to float shares in mid-September amid a temporary improvement of the stock market conditions in Russia and worldwide. This SPO was important for potential Russian borrowers and investors: it helped establish more precise price bench-

mark for the subsequent share offers of Russian issuers from the banking and non-banking sectors. Overall, only 10 Russian issuers were able to enter the public borrowing market in 2012. The total amount of funds they managed to attract from public share offerings on Russian and foreign stock exchanges ($9.5 billion) was by 15.3% smaller than in 2011 (Chart 3.3.6, Addendum, Table 6). The overall number of Russian share issues fell to 11 from 18 in 2011. Equity trading in the secondary market also declined noticeably. The aggregate equity secondary trade turnover on the Moscow and St Petersburg Exchanges contracted by 44.4% in January-November 2012, compared with 2011 (Table 3.3.1).

For the purposes of switching to innovation-driven and sociallyfocused economic development, the Russian Government adopted a programme for the eventual curtailment of the state’s participation in property management in the competitive sectors of the economy. Specifically, the programme stipulates the privatisation of share packages in the largest companies, with leading positions in some sectors of the domestic economy and high investment attractiveness. These include Russia’s biggest credit institutions Sberbank and VTB Bank (the sale of 7.58% minus one share in Sberbank and 25.5% minus one share in VTB). The programme is scheduled for 20112013.

25

32

2012

Capital market

The equity market capitalisation on the Moscow Exchange (Classica) increased by 1.6% as of the end of 2012 compared with the end of 2011 to $811.1 billion (Chart 3.3.7). The segments of shares of banks and oil and gas companies retained their significant lead in the aggregate equity secondary trade turnover on Russia’s major exchanges: the Moscow Exchange and the St Petersburg Exchange (Chart 3.3.8, Chart 3.3.9). The equities

of Sberbank, the biggest issuer in the banking sector, accounted for the largest amount of equity trading (Chart 3.3.10). At the same time, investors showed growing interest in the shares of chemical and petrochemical companies, as well as the shares of companies from the non-commodity sectors of the Russian economy that are mostly focused on domestic demand (specifically, the shares of consumer goods and machine-building companies).

Is There a Bubble in the Russian Equity Market? Price bubbles emerge in stock markets when investors overestimate the profitability of their investment in some market assets and the market prices of assets rise far above their price justified by fundamentals. Globally, experience shows that the overheating of the markets of financial and non-financial assets is inevitably followed by a sustained and steep fall in asset prices. This leads to destabilisation and, in some cases, crises in these markets; in such cases there is a subsequent spillover of crisis factors into the real sector of the economy. The profound and sustained nature of the global crisis of 2008-2009 was mainly prompted by lengthy pre-crisis booms in asset prices in developed and emerging markets, including Russia. An econometric analysis of the bubble indices based on the P/E- and P/FCF-ratios (P/E- and P/FCF-indices), and also the dividend yield (DY-index)1, revealed three time intervals in the Russian equity market in 2003-2012 that showed the signs of price bubbles. These were: November 2002 – December 20042, August 2005 – June 2008, and April 2009 – March 20123. The second time interval corresponds to the period that preceded the crisis of 2008-2009, while the third interval covers the post-crisis recovery of the Russian equity market. This periodicity of price booms has been confirmed by leading stock market experts. The price bubble, which emerged in the Russian equity market in the post-crisis period, reached its peak by midApril 2011. It then decreased slightly but failed to burst completely. In other words, this bubble stopped growing in 2012, reducing the probability of a significant further fall in equity prices in the medium-term.  The P/E- and P/FCF-ratios and the dividend yield help assess whether the equities are overvalued /undervalued and can be used as the criteria for identifying bubbles in the stock market. The P/E- and P/FCF-indices are built on the Capital Asset Pricing Model (CAPM), which uses the inverse P/E- and P/FCF-ratios as the expected returns on equities which are considered as indicating investors’ awareness of asset investment risks. A change in the returns on assets is directly proportional to a change in the risk of asset-generated income, while the latter change is inversely proportional to asset price changes. When a price bubble is created, the asset price grows, irrespective of the risk of asset-generated income. The conclusion about the bubble’s existence is made when the coefficient in the linear regression equation turns negative or assumes values that are below the positive near-zero threshold level set in the model. The DY-index is designed to reveal the breakdown of co-integrating relationship between dividends and prices that means the existence of bubbles in asset prices. A rolling subsample ADF test searches for the presence of a unit root in the surveyed data sample. A bubble is identified when the null hypothesis is not rejected and the regression coefficient exceeds the null threshold. This is considered a sign of the ‘explosive’ series (assuming normally distributed residuals).

1

 A test based on the dividend yield of Russian equities gives the most accurate picture on the life span of the first bubble, thanks to the availability of data for the period since May 2001.

2

 The duration of bubbles that have been revealed varies due to differences in the sensitivity of indices.

3

2012



33

Financial market review

MICEX and asset price bubble indices4

 The P/E- and P/FCF-indices were calculated for six-month rolling windows. The threshold value for the P/E-index was shifted to the level of 0.12 (in consideration of the identified bubbles and the retrospective analysis of the dynamics of the above-mentioned indices). This does not contradict the assumptions of the model that is used for analysis. The threshold value was determined by calculating the average P/E-index values over the period under review. The DY-index was calculated for 12-month rolling windows.

4

Investors’ differing preferences influenced the dynamics of MICEX sectoral indices. The sectoral indices which increased in the period under review included the Consumer Sector (+27.4%), Chemicals and Petrochemicals (+12.6%), MachineBuilding (+11.6%), Oil and Gas (+10.5%) and Telecommunications (+1.8%), while the sectoral indices which recorded losses included Energy (-16.3%), Finance (-7.0%) and Metallurgy (-5.6%) (Chart 3.3.11). The rates of growth in the prices of the top ten most liquid Russian stocks varied across a wide range, from – 26.2% to + 22.9% in 2012 (Chart 3.3.12). Positive growth rates were demonstrated by the prices

34

Table 3.3.1

Equity secondary trade volumes on main Russian stock exchanges (billions of roubles) 2011

2012*

Growth in 2012 on 2011 (%)

19,595.3

10,897.8

-44.4

0.4

0.1

-77.1

19,595.8

10,897.9

-44.4

Stock Exchange Moscow Exchange** St Petersburg Exchange Total

* Based on data for January-November 2012. ** Before 19 December 2011, the data represent the total equity secondary trade volume on the MICEX and RTS stock exchanges. Source: Moscow Exchange, St Petersburg Exchange, calculations by the Bank of Russia Research and Information Department.

2012

Capital market

of the shares, which recovered most rapidly in the summer months after the market’s deterioration in March-May. These included the stocks of the largest issuers in the oil and gas sector – Rosneft, LUKoil and Surgutneftegaz; their prices grew faster than the prices of other equities in June-August 2012 amid rising world oil prices. The prices of these stocks grew by 22.9%, 19.3% and 8.5%, respectively, in 2012. The share prices of Sberbank, the Russian banking sector’s largest issuer, also grew until mid-September ahead of the bank’s SPO, demonstrating an annual increase of 18.3%. Aside from this, growth was registered in the stocks of the largest issuers in the metallurgical sector: Norilsk Nickel (+15.4%) and Severstal (+4.7%), as well as the chemical industry – Uralkali (by 2.6%). The stocks of the other major issuers fell by 7.0%-26.2%. Most of the actively traded second- and third-tier stocks demonstrated negative price dynamics that ranged from -0.5% to -84.4%. At the same time, some instruments from this group appreciated by 0.1%-222.3%.

2012



35

Financial market review

Therefore, the Russian equity market showed no marked improvement in 2012 after its destabilisation in the second half of 2011. At the same time, the domestic market’s response to the impact of external shocks weakened to some extent as the market demonstrated smoother dynamics among its main price indices compared with the previous year. This excluded the possibility of the equity market overheating in 2012. *** The Russian equity market will continue to be heavily influenced by external conditions in 2013. IMF experts and experts from the European Commission estimate that global economic activity will remain low in 2013, which will restrict the dynamics of world commodity and financial asset prices, as well as Russia’s economic growth. At the same time, the world’s monetary policies are expected to remain focused on stimulating measures until the end of 2013. This factor, along with the existing stabilisation and stimulus programmes of the European and US policy-makers, will provide support to asset prices in developed and emerging markets. The diverse impact of the above-mentioned factors will contribute to the persistence of uncertainty over price expectations in the global capital market and, therefore, high volatility in the Russian equity market.

3.4. Loan and deposit markets In 2012, the Russian loan market demonstrated slower growth in interbank lending and corporate lending. The debts of all categories of borrowers on loans, deposits and other funds extended to them (hereinafter loans) grew by 16.2% in January-November 2012 (by 26.0% in 2011) to 33,359.4 billion roubles as of 1 December 2012. The share of loans in total banking sector assets increased to 70.0% as of 1 December 2012 but failed to reach their pre-crisis level. The amount of loans extended to non-financial organisations increased by 11.9% in January-November

2012 (by 24.1% during the same period of 2011) to 19,822.7 billion roubles, as of 1 December 2012, accounting for about half of the growth of the banks’ total loan portfolio (Chart 3.4.1). The demand for loans from higher quality corporate borrowers slightly fell by the end of 2012 as the borrowers intensified their activities to borrow funds in the bond market. The monthly volume of the non-financial organisations’ loan portfolio in 2012 was affected by revaluations of their portfolio’s foreign currency component, due to the Russian rouble’s fluctuations against the US dollar (Chart 3.4.2). The share of loans to non-financial organisations in the total amount of loans fell to 59.4% as of 1 December 2012, the minimum level seen in the past few years, as a result of rapid growth in lending to households. Russia’s top thirty banks (excluding Sberbank) demonstrated the lowest increase in corporate lending in January-November 2012, whereas small and mediumsized regional banks, as well as Moscow banks registered growth rates that were far above the average level. This was partly because of their lending to small and mediumsized enterprises (SMEs) in Russian regions. Over this period, Sberbank built up its lending to non-financial organisations by 13.7%, contributing over 40% to the growth in the banking sector’s corporate loan portfolio. During most of 2012, Russian banks were tightening their non-price lending terms for nonfinancial organisations (primarily, their requirements with respect to the borrower’s financial standing and loan collateral)26. A number of banks were seen to cut the maximum term for their lending, while some credit institutions elected to raise interest rates on corporate loans. Overall, average weighted interest rates on rouble loans to non-financial organisations in 2012 fluctuated Changes in the terms of bank lending in the first-third quarters of 2012 // Bank of Russia Bulletin No. 27 (1345) of 25 May 2012, No. 44 (1362) of 8 August 2012, No. 70 (1388) of 30 November 2012.

26

36

2012

Capital market

near the level registered by the end of 2011. Specifically, in October 2012, the average weighted interest rate equalled 9.1% p.a. on rouble-denominated corporate loans for a term of up to one year and 11.3% p.a. on loans for a term of over one year (Chart 3.4.3). A Rosstat survey27 conducted in November 2012 showed that the share of organisations considering high interest rates to be a major factor restraining production growth was almost unchanged from the same period in 2011 and stood at about 30%28. Total loan affordability for the industry29 in 2012, according to the market research polls of the Gaidar Institute for Economic Policy, was assessed as ‘normal or above-normal’ by 70% of polled organisations. Only 3-4% of these organisations believed that the shortage of bank loans was a factor restraining the growth of industrial production. In some periods of 2012, Russian banks tightened their terms for long-term lending to a greater extent than for their terms for the provision of short-term loans30. Nevertheless, the volume of loans to non-financial organisations for terms of up to one year increased by 5.5% and for terms of over one year by 14.1% in January-November 2012. Long-term loans continued to prevail in the total amount of loans extended to non-financial organisations. As in the previous year, In November 2012, Rosstat surveyed business activity of 4,500 organisations across three types of economic activity: ‘Hydrocarbon Production and Mining’, ‘Manufacturing Industries’ and ‘Electricity, Gas and Water Production and Distribution’ (excluding small enterprises).

27

The types of economic activity ‘Hydrocarbon Production and Mining’ and ‘Manufacturing Industries’.

28

Based on the results of a selected poll of the heads of borrower organisations who assessed bank loan affordability, using their internal methodologies.

the non-financial organisations’ demand for long-term loans in 2012 was mainly met by banks with a government stake in their capital (hereinafter state banks) and large private banks. The share of bank loans in the financing of fixed capital investment in Russian organisations remained low, at 8.2%31 in January-September 2012. This share is 40% in the United States, 45% in European Union countries and 65% in Japan32. The loan portfolios of mining companies registered the highest increase in the sectoral structure of corporate lending in January-November 2012, as they grew by 26.2% (they posted almost identical performance in the same period of 2011). Wholesale and retail trade organisations, as well as companies in manufacturing industries, built up their loan portfolios by 15.7% and 12.3%, respectively, during the eleven months of 2012, retaining their leading positions in the sectoral structure of corporate loans (20.4% and 19.8% as of 1 December 2012). Despite substantial risks, banks consider trade organisations to be the most attractive borrowers, largely because they extend loans to these companies at relatively high interest rates and offer them a range of services33 that guarantee banks considerable income (Chart 3.4.4). Compared with lending to large borrowers, during most of 2012 banks were more active in SME lending, which is characterised by substantial risks. The volume of loans extended to SMEs increased by 16.3% in January-November 2012 (by 17.3% over the same period of 2011), while lending to large non-financial organisations grew by 13.6% (by 25.3% in the same period of 2011). The leading positions in the SME lending market were captured by the biggest banks that were actively introducing the technology of small business continuous crediting (the so-called credit factories). The share of the top thirty banks (excluding Sberbank) in the overall amount of SME loans increased whereas the quality of the corresponding loan portfolios held by this group of banks deteriorated. The development of credit factories also resulted in the growth of the share of small business loans in the total SME loan portfolio, the decrease in the average loan maturity and the reduction of the share of investment loans in the total number and volume of SME loans. The non-price conditions of SME lending were almost unchanged in 2012 (see the Box: ‘Change in the Non-price Bank Lending Conditions’). As in the previous year, retail lending in 2012 grew faster than corporate and interbank lending. The volume of loans extended to households increased by 36.3% in January-November 2012 (by 30.6% in the same peri-

29

Changes in the terms of bank lending in the first-third quarters of 2012 // Bank of Russia Bulletin No. 27 (1345) of 25 May 2012, No. 44 (1362) of 8 August 2012, No. 70 (1388) of 30 November 2012.

30

2012



31

Based on Rosstat data.

32

Based on the data provided by the IMF and the World Bank.

Along with loans extended by banks, trade organisations normally actively use the following types of bank services: cash collection, the offer of services to customers, and the provision of payment and other services.

33

37

Financial market review

od of 2011) to 7,564.0 billion roubles as of 1 December 2012 (Chart 3.4.5). The share of retail loans in the banks’ total loan portfolio grew to 22.7% as of 1 December 2012. These results can be explained by the households’ fairly high demand for loans34, which makes retail lending one of the most profitable segments of banking business. Russia’s biggest banks made a major contribution to the growth of retail lending in 2012. The country’s top thirty banks built up their retail loan portfolio by 43.6% in January-November 2012, which exceeded the banking sector’s average. This group of banks accounted for over 70% of the total volume of loans to households and for over 80% of the retail loan portfolio growth in the eleven months of 2012. Russia’s largest state banks, primarily Sberbank, were the leaders of retail lending by volume. Experts estimate that the behaviour of households in 2012 can partly be explained by their desire to obtain loans on current terms, in the expectation that banks might tighten loan provision terms. At the same time, the level of household income was observed to grow and citizens felt increasingly confident about their ability to service their loans. According to Rosstat data, household real income increased noticeably in 2012. Russia’s ratio of loans extended to households to GDP (about 12%) is so far considerably lower than in developed countries35. However, the ratio of debt payments to household Specifically, Sberbank’s Financial Sentiment Index indicates that the household propensity for buying on credit tended to grow during most of 2012 (although this trend was unsteady due to the seasonal factor).

34

According to data provided by the IMF and the World Bank, total household debt to financial organisations exceeds 150% of the GDP in the United States, equals about 100% in Western Europe and over 50% in Central and Eastern Europe. Housing loans account for a considerable part of this debt. For example, this debt is dominated by mortgages in the United States, while non-mortgage loans account for only a fifth of citizens’ liabilities.

35

38

income already stands at 15-20% in Russia whereas in developed countries it does not exceed 10%. Retail lending remained one of the most competitive segments of the banking services market. The main instruments that accounted for banks’ competitive struggle for borrowers were measures to introduce new credit products for households, simplify retail loan formalisation procedures and increase the maximum amount of consumer loans36. At the same time, some banks, including the largest lenders, were seen to raise interest rates on certain types of retail loans in 2012. Average weighted interest rates on short-term rouble loans to households did not change significantly in 2012, while these rates on long-term loans slightly increased. Average weighted interest rates on household rouble loans equalled 24.7% p.a. for terms of up to one year and 19.7% p.a. for terms of over one year in October 2012 (Chart 3.4.3). Real interest rates on retail loans were positive in 2012. Consumer lending demonstrated the highest growth rates in the retail segment of the loan market in 2012. The volume of consumer loans grew by more than 45% in January-October 2012, largely due to the growth of cash loans and credit cards outpacing general consumer loan growth. As of 1 November 2012, consumer loans (generally unsecured ones) accounted for over 60% of the retail loan portfolio (Chart 3.4.6). The need to further expand their client bases intensified competition among banks, and also among banks and microfinance organisations in 2012 in the consumer lending segment, which includes unsecured loans. Many banks were actively expanding their range of consumer loans, seeking to maximally increase their attractiveness among borrowers, and were seen to ease some Changes in the bank lending conditions in the first-third quarters of 2012 // Bank of Russia Bulletin No. 27 (1345) of 25 May 2012, No. 44 (1362) of 8 August 2012, No. 70 (1388) of 30 November 2012.

36

2012

Capital market

non-price terms of their lending activity. Some banks, which sought to maintain high profit margins but had a limited number of exceptionally reliable borrowers, resorted to raising interest rates on these loans. The volume of housing mortgage loans (hereinafter mortgages) grew by 26.3% in January-October 2012 to 1,867.4 billion roubles as of 1 November 2012 (Chart 3.4.7). These mortgages accounted for about 3% of Russia’s GDP, compared with over 45% in the European Union, almost 65% in the United States, and over 100% in the Netherlands37. The banks’ efforts to introduce new mortgage lending programmes had a positive effect on the domestic mortgage market in 2012. Further support came from new home sales and the commencement of new housing projects in the Russian regions. Specifically, there were many new housing projects in the Moscow Region as part of the federal government’s plan to expand the boundaries of the city of Moscow. The quality of mortgage loan collateral improved significantly after the new rules for foreclosing on the borrower’s property were adopted in late 2011. At the same time, the policies pursued by some banks, including the largest lenders, for raising mortgage loan rates had a slight restraining effect on the development of the domestic mortgage market starting in the second half of 2012. The state banks and the Agency for Housing Mortgage Lending (hereinafter the AHML) remained the basic creditors in the domestic mortgage market. During some of the months of 2012, the three leading state banks – Sberbank, VTB-24 and Gazprombank – accounted for almost 65% of the country’s outstanding mortgage debt. Together with the AHML and other state banks, they accounted for about 75-80% of that amount. The car loan market demonstrated fairly stable development in 2012, supported by considerable car sales. Household debt on car loans grew by 17.8% in

January-October 2012 (by 17.3% in January-October 2011). Expert estimates show that over 45% of cars in Russia were bought with the use of bank loans. Active operations by banks representing car producers, as well as the termination of the government preferential car loan programme, stimulated the development of competition and the further liberalisation of lending conditions in the car loan market in 2012. Some tightening of the banks’ interest rate policies in the retail segment of the loan market in the second half of 2012 also resulted in the growth of interest rates on car loans. The quality of the banking sector’s loan portfolio slightly deteriorated, primarily due to the growth in overdue loans to non-financial organisations. The share of overdue liabilities in the total volume of corporate loans increased to 4.9% as of 1 December 2012, whereas the share of overdue retail loans in their total volume decreased to 4.4% as of the same date. The consumer credit health index (FICO Credit health index)38 fell by two points in the third quarter of 2012 from the first quarter to 111 points. This reflected the need for banks to monitor their client base and select potential borrowers more carefully. The creation of a legal framework for the bankruptcy of households in the near future39 will enable banks to pursue more adequate retail lending policies, while citizens will obtain the possibility to apply to arbitration courts to seek protection from creditors.

The index is calculated by the National Credit History Bureau jointly with FICO (Fair Isaac Corporation, USA), taking into account the share of ‘bad’ retail borrowers in their total number (bad rate). ‘Bad’ borrowers are considered to include households who have failed to redeem overdue debts within 60 or more days. The bad rate’s initial value (11.28%) corresponds to the index’s base value of 100 points (July 2009). The index scaling doubles the bad rate when the index falls by 20 points, and halves the bad rate when the index grows by 20 points.

38

Russia is expected to pass a law on the bankruptcy of households soon.

39 37

Based on data provided by the IMF and the World Bank.

2012



39

Financial market review

Change in the Non-price Bank Lending Conditions Bank loan affordability is determined by both price terms (interest rates, extra fees) and the non-price conditions (the maximum maturity and size of loans, requirements regarding the financial standing of the borrower, and the quality of loan collateral) of the provision of loans. In addition to specific indices characterising particular non-price conditions1, a consolidated index of non-price lending conditions has been calculated. In order to devise this consolidated index, the Bank of Canada’s methodology for measuring the index of non-price lending conditions was adapted2. The analysis of the index of non-price lending conditions, along with the analysis of the index of overall change in bank lending conditions (BLC) and the index measuring changes in the loan rate, testifies to the considerable shifts that occurred in the Russian loan market in 2012. For the first time since 2009, when BLC surveys were launched, the price and non-price terms and conditions of household lending demonstrated opposite trends: while raising interest rates on loans, banks simultaneously eased the nonprice lending conditions. These changes can be explained by the growing cost of bank funding, coupled with the continuing competition among banks in the household loan market. As banks were restricted from using price competition instruments, they were forced to resort to non-price competition. In the segment of lending to large corporate borrowers, banks pursued tighter policies. They raised prices and offered less favourable non-price lending terms, although the latter terms changed to a lesser extent. In the segment of lending to small and mediumsized business, banks mostly adjusted price conditions. Non-price conditions went almost unchanged during the year. The differences observed in the dynamics of the nonprice conditions of lending to households could be one of the reasons for the faster growth in the banks’ retail loan portfolio compared with the corporate loan portfolio.

1

 The results of the survey of bank lending conditions for the third quarter of 2012 are published in Bank of Russia Bulletin No. 70 (1388), dated 30 November 2012, while the calculation methodology is detailed in Bank of Russia Bulletin No. 68 (1311), dated 14 December 2011.

2

 The Bank of Canada’s methodology is described in Faruqui U., Gilbert P., Kei W. The Bank of Canada’s Senior Loan Officer Survey, Bank of Canada, 2008. The survey of change in non-price lending conditions for the Russian loan market gives a summary evaluation of the non-pricing dimensions of lending conditions for each surveyed bank (with evaluations ranging from a ‘considerable tightening’ to a ‘considerable easing’ in non-price lending conditions). These evaluations are based on the assessments of change in the maximum amount and maturity of loans, the requirements stipulating borrowers’ financial standing, and loan collateral. The banks’ evaluations are then used to calculate the index of change in the non-price conditions of bank lending for the Russian banking sector as a whole.

40

2012

Capital market

The deterioration of some characteristics of corporate loan quality in January-October 2012 resulted in the accelerated buildup of the volume of provisions set aside for possible losses on these loans (hereinafter loan loss provisions). The volume of loan loss provisions created for loans to non-financial organisations and households almost fully covered the problem and the bad loans to these categories of borrowers in the period under review40. In 2012, Russian banks were quite successful in tackling the problem of their customers’ debts, transferring the debt recovery procedures to outsourcing organisations or selling their debt portfolios. As a result, the outsourcing market (the transfer of debt recovery to third parties) demonstrated stable growth in 2012, while the cession market (the assignment of claims to third parties) registered even higher growth rates. In 2012, the portfolios of overdue loans that were offered for sale by banks were dominated by household debts on credit cards, loans for the purchase of goods and other consumer loans. The largest share in the portfolios of overdue debts was held by loans that were 1-2 years past due41. The funds banks raised from organisations and households remained the main sources of funding for the Russian banking sector in 2012. The volume of funds42 placed by corporate entities (other than credit institutions) on bank deposits grew by 10.1% in January-November 2012 (by 34.7% in the same period of 2011) to 9,210.1 billion roubles as of 1 December 2012 (almost 20% of the banking sector’s total liabiliFrom 2013, measures are planned to double the requirements for making provisions for unsecured retail loans, and also raise risk coefficients for consumer loans for calculating banks’ capital adequacy ratio (N1 ratio).

40

Based on the estimates of Sequoia Credit Consolidation, a collection agency, and Filbert, a collection and litigation agency.

41

Including other funds attracted from corporate entities and certificates of deposit.

42

2012



ties). The funds deposited by the Russian Ministry of Finance and other government bodies contributed over 23% to the growth of corporate deposits over this period (Chart 3.4.8). The structural liquidity deficit observed in 2012 intensified banks’ competition for raising and retaining the funds of their customers, particularly those of corporate clients. Specifically, Sberbank took steps in June and November 2012 to improve deposit terms for loyal corporate customers43 in order to build up its share in the corporate deposit market. In January-November 2012, the amount of corporate funds placed on deposit with Sberbank grew by 83.4%, while the volume of corporate deposits held by Russia’s top thirty banks increased by 11.1%. Sberbank’s share in the corporate deposit market increased to 19.7% as of 1 December 2012, while the share of the country’s thirty largest banks grew to 83.1%44. As Russian companies sought to build a financial safety cushion and minimise exchange rate risks, corporate long-term foreign currency deposits grew faster (in January-November 2012) than rouble deposits with the same maturity. The share of foreign currency deposits for a term of over one year increased to 31.1% in the total amount of corporate deposits, as of 1 December 2012. The amount of household deposits45 placed with Russian banks increased by 13.2% in JanuaryNovember 2012 (by 12.7% in the same period of 2011) to 13,434.2 billion roubles (about 30% of total banking sector liabilities) as of 1 December 2012 (Chart 3.4.9). As in the previous year, deposits for a term of over one year accounted for most of the growth in household deposits (almost 60% over the eleven months of 2012) and retained their predominant share in the term structure of this source of bank funding. Savings certificates registered their fastest-ever growth in the banking sector in 2012 (their amount grew by almost 17 times in January-November 2012) and their highest-ever share in the total growth of household deposits (over 10%). According to Rosstat data, savings in the form of deposits and securities accounted for 3.8% of household money income use in January-October 2012 and exceeded the level registered in the same period of 2011. The relative increase in the share of deposits in 2012 was mainly achieved with the use of cash, according to expert estimates. Sberbank is currently implementing four major deposit programmes, which are designated for corporate entities and individual entrepreneurs. Interest rates on these deposits not only differ considerably depending on the deposit amount and maturity date but are also calculated by the bank on a daily basis.

43

The main players in the corporate deposit market are Sberbank, VTB Bank and VTB-24.

44

45

Including savings certificates.

41

Financial market review

The concentration of the household deposit market decreased in 2012 due to the contraction in the share of the country’s thirty largest banks (primarily Sberbank). Considering the availability of alternative sources of funding, this group of banks pursued less attractive interest rate policies in the deposit market when compared with other banks. In certain months of 2012, some of the largest banks registered an outflow of funds from household deposits. In view of this, 45 out of the 100 largest banks46 raised their interest rates on deposits at the end of 2012. The growth of interest rates on deposits offered by the leaders of the household deposit market explains the increase of the average maximum rate on rouble deposits among the top ten banks attracting the largest amount of retail deposits. This rate, which is calculated by the Bank of Russia to determine the indicative level of deposit rates in the banking sector, rose to 9.65% p.a. in the second ten-day period of December 201247. Along with making changes to its deposit rate policy (Addendum, Table 7), Sberbank was seen to improve the price terms of attracting household funds into bearer savings certificates several times during 2012. This bank accounted for over 95% of both the total volume of savings certificates and their overall growth in January-November 2012. Sberbank’s keen interest in savings certificates can be explained by the development potential of this segment of the banking services market. Savings certificates are attractive for 46

Based on data provided by the Deposit Insurance Agency.

From September 2012, this rate is calculated without considering the influence of combined deposit products. From October 2012, the Bank of Russia paid special attention to banks offering deposits rates that exceed the calculated average market maximum rate by more than two percentage points. It is expected that the level of deposit rates in 2013 will be determined by the size of banks’ deductions to the deposit insurance fund, after the insurance compensation on bank deposits is raised from its current 700,000 roubles to 1 million roubles.

47

42

banks because these financial instruments are excluded from the deposit insurance system, and banks are not obliged to make deductions for the deposit insurance fund. These savings certificates are advantageous for households, as they offer interest rates that are higher than those on deposits with similar terms and are also convenient for households to use and present for redemption. While placing their funds on bank deposits, some depositors sought to hedge risks arising from fluctuations in the exchange rate of the national currency. As a result, foreign currency deposits grew faster than rouble deposits in January-November 201248. The share of foreign currency deposits in the total value of household deposits reached 18.4% as of 1 December 2012. The amount of insurance coverage (potential liabilities for insurance compensation payment) by the Deposit Insurance Agency state corporation (hereinafter DIA) corresponded to the volume of household deposits in the Russian banking sector in 2012. Insured events occurred in relation to 12 banks in January-October 2012 and insurance compensation paid by the DIA amounted to 14.1 billion roubles over that period. Therefore, the loan market in 2012 was primarily characterised by the slower growth in the corporate loan portfolio compared with the previous year, along with the accelerated build-up of bank lending to households. Certain bank lending conditions were tightened to some extent in 2012 but mostly in relation to loans provided to non-financial organisations. In the retail segment of the loan market, the change of lending terms was restrained by tight competition among banks for borrowers. The quality of the banks’ total loan portfolio slightly deteriorated in 2012, first and foremost, due to the growth in overdue loans to non-financial organisations. Despite the banks’ increased need for raising corporate and household funds more actively in 2012, some indicators of the deposit market dynamics and structure over that period were either lower than in the previous year or remained unchanged from 2011. Many banks had improved the terms for corporate and household deposits by late 2012. *** Expert estimates indicate that the growth of lending in 2013 will not exceed 15% in the segment of corporate borrowers and 25-30% in the segment of retail lending. The DIA’s forecast suggests that the growth of household deposits in 2013 will be slower (15-16%) than the growth expected for 2012 as a whole (18%). This will be partly attributed to the households’ lower savings activity. The growth in corporate deposits is also expected to slow down in 2013.

48

Both in rouble and US dollar equivalent.

2012

Capital market

3.5. Credit institutions and non-bank financial institutions in the capital market In 2012, the growth in the volume of funds raised by credit institutions and most types of non-bank financial institutions contributed to the increase of their investments in securities. At the same time, the share of securities in the structure of their assets decreased due to the continuing uncertainty over price expectations in the Russian securities market and a faster growth in other types of investment. The credit institutions’ securities portfolio grew by 11.4% in January-October 2012, with securities included in the Bank of Russia’s Lombard List accounting for most of this growth, according to expert estimates. These securities allowed credit institutions to raise financing through repo transactions. The securities portfolio of management companies (MCs) participating in the compulsory pension insurance system (CPI)49 grew by 8.9% in the first half of 2012, with most of this growth resulting from the use of pension accumulations transferred from the Pension Fund of Russia (PFR). The volume of funds held by the MCs participating in individual trust management schemes increased by 11.0% in January-September 2012 largely due to an inflow of customer funds50. As usual, MCs invested most of these funds into securities. The volume of funds that insurance companies invested into securities increased by 1.5%, largely as a result of using reserves under insurance contracts other than life insurance51. The securities portfolio of non-governmental pension funds (NPFs) grew by 11.5% in the first half of 2012 as a result of using pension savings transferred from the PFR, and also premiums of participants in the programmes of non-governmental pension provision52. The securities portfolios of retail (open-end and interval) unit investment funds (PIFs) decreased by 6.4% in January-September 2012 mainly because their investment opportunities narrowed under the impact of a net outflow of unit holders’ money (Chart 3.5.1) 53. Data of the Pension Fund of Russia were used to assess the activity of MCs participating in the compulsory pension insurance system, unless indicated otherwise.

49

Data of Expert RA rating agency were used to assess the activity of MCs participating in individual trust management schemes.

50

Data of the Federal Financial Markets Service (FFMS of Russia) and data of reporting form No. 1-FS (SK) ‘Information on the Areas of Insurers’ Borrowings and Investments’ available as of 1 July 2012 were used to assess the activity of insurance organisations.

51

Data of the FFMS of Russia and data of reporting form No. 1-FS (NPF) ‘Information on Financial Operations by Non-Governmental Pension Funds’ available as of 1 July 2012 were used to assess the activity of NPFs.

52

Data of Cbonds.ru were used to assess the activity of PIFs, unless indicated otherwise.

Joint stock investment funds (JSIFs) registered a contraction of their investment in securities, which could be explained by negative revaluations of the investment portfolios of funds investing in securities. The net asset value (NAV) of JSIFs fell by 8.4% in the first half of 2012. In 2012, credit institutions, insurance companies, NPFs, retail PIFs and MCs participating in the CPI system registered a reduction of the share of securities in the structure of their assets (Chart 3.5.2). The securities portfolios of credit institutions grew by 1.2 times slower than their assets (January-September 2012), while the growth of the securities portfolios of insurance companies, NPFs and MCs participating in the CPI system was slower than their asset growth by 3.0, 1.5 and 1.1 times, respectively (January-June 2012). Credit institutions and most types of non-bank financial institutions mostly pursued conservative investment strategies in the capital market in 2012 due to persistently high investment risks. Credit institutions’ investments in equity securities decreased by 6.9% in January-October 2012, mainly due to the reduction of investment in the shares of nonfinancial organisations (Chart 3.5.3). Retail PIFs reduced their investments in shares by 16.8% in January-September 2012. As a result, the share of equities in their securities portfolios fell to 57.1% as of 1 October 2012, the lowest level for the past few years. Bond PIFs demonstrated the largest reduction in equity investment among funds grouped by category (by 32.5%) as part of the money was rechanneled into corporate bonds and bank accounts. In the sectoral structure of equity investments by retail PIFs in January-September 2012, the fastest growth was demonstrated by investments in the shares of electric power companies (over 25%) and the slowest growth (0.02%) by investments in agriculture equities (Chart 3.5.4).

53

2012



43

Financial market review

Investments by NPFs in shares and other forms of holding stakes in capital fell by 1.2% in January-June 2012 partly due to the reduction of investment in the shares of credit institutions. MCs participating in the CPI system reduced their equity holdings by 1.3% in the first half of 2012. Among the main types of non-bank financial institutions, only insurance companies demonstrated a positive growth of investment in shares and other forms of holding stakes in capital (7.0% in the first half of 2012). This growth occurred because some insurers increased investment in the securities of their affiliates, and also because some of them pursued aggressive investment strategies in the capital market. The securities of non-financial organisations remained the main area of insurers’ investments in shares, with the volume of this investment growing by 4.8% in the period under review (Chart 3.5.5). In 2012, credit institutions and non-bank financial institutions increased their investment in debt securities.

44

Most of these organisations registered a faster growth in this type of investment compared with investment in equity securities. Insurance companies were the sole exception as their investment in equities and other forms of holding stakes in capital grew faster than their investment in debt securities. Credit institutions’ investments in debt securities grew by 10.5% in January-October 2012, mainly as a result of investing in debt securities transferred without derecognition. Probably, this process was linked to the growth of repo transactions. Investments in Russian Federaion’s debt obligations fell by 29.2% (Chart 3.5.6). Management companies participating in the CPI system increased their investments in debt securities by 7.6% by investing their funds in corporate bonds and GSOs. Most of this growth resulted from investment by Vnesheconombank state management company. Retail PIFs increased their investments in bonds by 9.2% in January-September 2012, mainly as a result of

2012

Capital market

investing in corporate securities. Bonds issued by electric power and oil and gas companies enjoyed the greatest demand, according to expert estimates. Insurers’ investments in debt securities grew by 2.6% in the first half of 2012. Their debt securities portfolios showed a growth of investment in the bonds of credit institutions and other financial organisations and government securities, along with a contraction of investment in the debt securities of non-financial firms. NPFs built up their investments in bonds by 16.9% in the first half of 2012. In expert estimates, the fastest growing type of bond investment by NPFs and insurance companies was their investment in the corporate bonds of issuers with high credit ratings. Larger investment in foreign securities in 2012 was demonstrated by credit institutions (a growth of 3.9% in January-October 2012), insurance companies and NPFs (an increase of 13.1% and 21.0%, respectively, in January-June 2012). Credit institutions’ investments in foreign securities grew slower than their investments in residents’ instruments whereas insurance companies and NPFs demonstrated a faster growth in investment in securities issued by non-residents. No considerable growth was registered in investment risks for credit institutions, insurers and NPFs in connection with the increase of their investments in foreign securities because the share of such investments remained relatively low in the structure of their securities portfolios. This share equalled 14.9% in the securities portfolios of credit institutions as of 1 November 2012, while this investment in the securities holdings of insurance companies and NPFs accounted for 12.4% and 1.1%, respectively, as of 1 July 2012. Retail PIFs reduced their investments in foreign securities by 10.6% in January-September 2012 by cutting their holdings of equities issued by nonresident organisations, and also their holdings of foreign government bonds. Mostly equity and bond

2012



PIFs demonstrated a contraction in their investment in foreign securities. The results of investment activity conducted by credit institutions and most types of non-bank financial institutions improved in 2012 compared with the previous year. Net income received by credit institutions from operations with securities increased by 18.9% in January-September 2012 as compared with the same period of 2011 to 251.6 billion roubles. In the first half of 2012, 45 out of 58 investment portfolios, which private MCs created using pension accumulations, showed positive yields (as against 42 out of 60 investment portfolios a year earlier). Almost 80% of retail PIFs registered positive growth in the unit price in January-September 2012. A year earlier, this figure was only 14.8%. The largest increase in the unit price among retail funds was demonstrated by equity PIFs (Chart 3.5.7). Insurance companies’ profits from the investment of insurance reserves, including their investment in securities, grew by 10.0% in the first half of 2012 as compared with the same period of 201154. Therefore, growth in the securities portfolios in 2012 was registered by credit institutions, management companies participating in individual trust management and CPI schemes, and also by NPFs and insurance companies. Retail PIFs and JSIFs showed a contraction of their investment in securities. Some non-bank financial institutions demonstrated a faster increase in the volume of their funds on bank accounts and deposits compared with their investment in securities due to the persistence of high investment risks in the Russian securities market. The results of investment activity conducted by banks and most types of non-bank financial institutions improved in the period under review as compared with 2011. 54

According to Rosstat data.

45

Financial market review

*** Given the persistence of uncertainty over price expectations in the Russian capital market in 2013, credit institutions and most types of non-bank financial institutions will continue to pursue mostly conservative investment strategies. The volume of their investments in securities will be determined by developments in the Russian securities market. Some legislative novations introduced in 2012 may have a positive effect on the investment opportunities of credit institutions and non-bank financial institutions in 2013. For example, an inflow of unit holders into PIFs will

46

probably be facilitated by the emergence of exchangetraded PIFs as a new type of funds. The development of new areas of insurance, particularly, compulsory civil liability insurance for owners of hazardous facilities, will stimulate growth in the volume of premiums collected by insurance companies. Some experts do not rule out that legislative requirements may be eased in 2013 for the composition and the structure of assets held by insurers, NPFs and MCs participating in the CPI system, which can also have a positive effect on the investment opportunities of these entities in the capital market.

2012

4. Derivatives market

The situation in the Russian derivatives market in 2012 continued to be influenced by the markets of underlying assets and differed considerably through market segments. Trade in currency futures and interest rate futures intensified, while the futures market’s other segments and the options market registered a considerable contraction in the volume of operations. Similar dynamics were observed for open interest in futures contracts in these segments. The volume of trades in exchange derivatives decreased in 2012 as compared with the previous year (Chart 4.1). Specifically, the average daily volume of trades in futures and options1 fell to 201.7 billion roubles in 2012 as against 230.1 billion roubles in 2011. The average daily volume of trades in futures on the Moscow Exchange contracted by 4.4% to 4.1 million contracts. At the same time, average open interest in futures on this exchange in 2012 amounted to 6.9 million contracts, which represents an increase of 15.1% as compared with 2011 (Table 4.1, Table 4.2). The annual turnover velocity ratio of futures contracts2 in the compared periods declined from 175 to 138, which could evidence some decrease in the share of speculative deals with these contracts. As before, futures with maturities of up to three months accounted for most of the exchange trade turnover in 2012. The share of futures with longer maturities (from three to six months and over six months) in the total trade volume contracted.

1

According to data of the Moscow Exchange and the St Petersburg Exchange.

2

The ratio of total annual trade turnover to average annual open positions (in contracts).

2012



The range of futures contracts in circulation expanded to include stock futures introduced on the Moscow Exchange in the first half of 2012 and interest rate futures. In February 2012, trading was simultaneously launched in Russian Depositary Receipts (RDRs) for the shares of United Company RusAl Plc in the Standard sector and deliverable futures contracts on the RDRs for the shares of this issuer on the futures market. In June, futures on the main stock indices of the four BRICS countries were introduced into circulation. The annual volume of trades in new stock futures contracts amounted to 1.4 billion roubles. In December 2012, the range of interest rate futures was expanded to include futures on a basket of ten-year federal loan bonds (Addendum, Table 8). The total amount of transactions with futures and options contracted in 2012 primarily due to the decrease in the volume of trades in the stock segment of the futures market (Chart 4.2) largely because investors (including non-residents) were seen to withdraw their funds from the Russian equity market and its futures segment3 during most of 2012. As a result, the share of the segment of stock futures in the total volume of exchange trades in derivatives fell to 65% in 2012 from 75% in 2011. The structure of the segment of stock futures by instrument remained almost unchanged in 2012. As before, futures on the RTS index prevailed in the trade turnover (Chart 4.3, Chart 4.4). Interest in contracts on other stock indices (the MICEX index, the

3

The data of the Moscow Exchange as of October 2012 show that non-residents accounted for 32% of the futures market trading and 35% of the volume of open positions in the market.

47

Financial market review

Table 4.1

Derivatives turnover by exchange and instrument (billions of roubles) 2010 Instruments Stock futures

2011

2012*

Total for all exchanges Total for all exchanges Total for all exchanges

Moscow Exchange

St Petersburg Exchange

24,342.1

42,777.5

30,466.7

30,466.7

-

–  Futures on RTS index

20,422.8

37,558.2

27,631.6

27,631.6

-

–  Futures on other stock indices

1,155.0

564.0

208.6

208.6

-

–  Futures on single stocks

2,764.2

4,655.2

2,626.5

2,626.5

-

4,662.0

8,718.5

12,422.9

12,109.9

313.1

Commodity futures

557.4

1,674.8

912.4

912.4

-

Interest rate futures

12.0

127.2

206.4

206.4

-

12.0

43.5

2.1

2.1

-

-

83.7

204.2

204.2

-

1,364.3

3,770.3

2,994.1

2,994.1

-

Of which:

Currency futures

Of which: –  Futures on short-term interest rates –  Futures on long-term interest rates (OFZ baskets) Options Of which: –  Stock options

1,315.8

3,729.9

2,928.1

2,928.1

-

–  Currency options

42.4

27.0

51.4

51.4

-

–  Commodity options

6.1

13.5

14.7

14.7

-

30,937.7

57,068.3

47,002.5

46,689.5

313.1

Total for all instruments * January-November.

Source: Moscow Exchange, St Petersburg Currency Exchange (2010), St Petersburg Exchange, calculations by the Bank of Russia Research and Information Department.

RTS Standard Index, the RTS sectoral indices and the RTSVX volatility index) was insignificant. The leaders in sigle stock futures on the Moscow Exchange in terms of volume were the futures contracts on the shares of Sberbank (1.3 trillion roubles), Gazprom (0.7 trillion roubles) and LUKoil (0.3 trillion roubles). The rouble’s depreciation against major world currencies in May and its high volatility in JuneOctober contributed to the growth in the demand for currency futures as instruments for hedging foreign exchange risk, and also as instruments for speculative

48

and arbitrage transactions. Currency futures showed smaller trading volumes than stock futures in 2012 but exceeded them for the first time since 2009 by the volume of open positions in contracts (Table 4.1, 4.2). The share of currency futures in the total volume of exchange trades in derivatives grew from 15% in 2011 to 26%. The breakdown of the currency futures turnover by underlying reference remained similar to the structure of the spot segment of the domestic foreign exchange market (Chart 1.8, 4.5). As was the case with the spot market, the futures market was dominated

2012

Derivatives market

Table 4.2

Open interest in derivatives on the Moscow Exchange (annual average, millions of contracts) Type of contracts

2009

2010

2011

2012*

6.9

6.4

7.8

8.6

– futures

5.1

4.7

6.0

6.9

– options

1.8

1.6

1.8

1.8

Stock futures

1.7

2.5

3.0

2.9

Currency futures

3.3

2.1

2.4

3.2

Commodity futures

0.1

0.2

0.3

0.3

Interest rate futures

0.01

0.02

0.3

0.6

Options

1.8

1.6

1.8

1.8

Total Of which:

* January-November. Source: Moscow Exchange, calculations by the Bank of Russia Research and Information Department.

by contracts on the dollar/rouble exchange rate: the volume of transactions with these contracts on the Moscow Exchange grew significantly from May and reached 10.8 trillion roubles in 2012 compared with 6.3 trillion roubles in 2011. The activity in operations with other currency futures on the Moscow Exchange and St Petersburg Exchange declined. During most of 2012, the contracts on the US dollar/rouble exchange rate were also leaders in terms of the value of open positions (as of the end of the month), outperforming the RTS index futures that previously were the most liquid instruments (Chart 4.6). Instability in the Russian equity market and high volatility of the national currency in the domestic foreign exchange market in 2012 were the factors that influenced the dynamics of futures prices in the main segments of the futures market (the stock and foreign exchange segments). During most of 2012, the prices of the most liquid futures contracts on the RTS index with short maturities (up to six months) were in

2012



backwardation (were lower than spot prices) regardless of the RTS index dynamics. The futures spreads of contracts with maturities longer than six months fluctuated within a wider range and were positive in the periods of the RTS index growth. These dynamics of the futures spreads pointed to stock market participants’ negative price expectations in the short term and their uncertainty over the longer term (Chart 4.7). The spreads between the futures and spot prices of the most liquid foreign exchange contracts (the contracts on the US dollar/rouble exchange rate) were observed to narrow in 2012 but remained positive despite a sequence of the periods of growth and decline in the rouble’s exchange rate against the US dollar, which could testify to foreign exchange market participants’ expectations of the US dollar’s moderate rise against the rouble (Chart 4.8). The commodity futures segment (2% of the total volume of exchange trades in derivatives) followed the dynamics of world commodity prices (Chart 4.9). The prices of precious metals fluctuated within a horizontal

49

Financial market review

band during 2012, thus reducing market participants’ interest in the futures contracts on these assets. The demand of trading participants for oil futures also decreased. The amount of transactions with commodity futures contracted by a factor of 1.8 in 2012 compared with 2011. As before, the most liquid commodity futures were contracts on gold (386.4 billion roubles) and Brent crude (384.1 billion roubles). Contracts on silver were also liquid enough (125.5 billion roubles). The segment of interest rate futures continued its development in 2012. Although these contracts held an insignificant share in the total volume of exchange trades in derivatives (less than 1%), the interest rate futures segment demonstrated the fastest growth in trade turnovers over the past two years (Table 4.1, Chart 4.2). Trading in these instruments intensified due to the expansion of operations with futures on long-term interest rates (OFZ baskets), which edged out almost completely similar contracts on the MosPrime short-term rates (overnight and 3-month rates) and the RUONIA

50

overnight rate. The growing volume of operations with government bonds serving as the underlying assets for futures contracts on long-term interest rates contributed to the growth of the demand for interest rate futures as the instruments for hedging interest rate risk (Chart 4.10). Further development of the OFZ basket futures segment will be facilitated by measures being implemented by the Moscow Exchange, which views the promotion of futures on OFZ baskets as a key priority for the futures market in the short-term perspective. Specifically, in December 2012, aside from launching trading in new futures on 10-year OFZ baskets, the Moscow Exchange introduced a new technology of delivery under futures on long-term interest rates (OFZ baskets). The Moscow Exchange also advocates granting management companies and nongovernmental pension funds the right of access to the futures market to enable them to hedge their positions on OFZ holdings. The options market had a close relationship to the futures market because options contracts are normally used in joint strategies with futures contracts on an underlying asset. The contraction of the stock segment of the futures market in 2012 resulted in the lower volume of operations with stock options, while the volume of trading in currency options and commodity options slightly increased (Table 4.1, Chart 4.11). The share of options in the total volume of exchange trades in derivatives declined to 6% in 2012 from 7% in 2011. Similar to the futures market, options on the RTS index futures remained the most traded instrument in the options market (2.8 trillion roubles). Regardless of the RTS index dynamics, the monthly volumes of put and

2012

Derivatives market

call4 options on the RTS index futures remained roughly equally divided in the period under review (Chart 4.12). Such a ratio of the volumes of operations with these types of options could testify to the uncertainty of the stock market participants’ price expectations as a whole. In 2012, Russian credit institutions stepped up their operations in the derivatives market: their investments in these instruments increased from 122.7 billion roubles as of 1 February 2012 to 159.9 billion roubles as of 1 December 2012. Banks accounted for 8% of overall trade and 14% of the volume of open positions on the Moscow Exchange’s futures market as of October 2012. Considering the growing significance of the derivatives market as a mechanism of risk hedging, the Bank of Russia has made amendments to its regulations5 on credit institutions’ operations with derivatives. Under these amendments, which came into force in 2012, the banks’ financial result from operations with derivatives was segregated into separate balance sheet accounts, the procedure for keeping accounting records of these instruments was specified and derivatives were included in the calculation of the ratio ‘Maximum Risk per Borrower or a Group of Related Borrowers (N6)’. The Bank of Russia’s measures for regulating operations in the derivatives market are intended to streamline banks’ participation in futures market trade. 4

The ratio of the trading volumes of put and call options on an underlying asset (the put/call ratio) is an indicator of market sentiment. When the price of an asset is expected to fall, put options are traded more actively than call options and vice versa.

5

Bank of Russia Regulation No. 372-P, dated 4 July 2011, ‘On the Procedure for Accounting for Derivatives’, Bank of Russia Instruction No. 110-I, dated 16 January 2004, ‘On Banks’ Required Ratios’, Bank of Russia Regulation No. 302-P, dated 26 March 2007, ‘On the Accounting Rules of the Credit Institutions Located in the Russian Federation’ and Bank of Russia Ordinance No. 2332-U, dated 12 November 2009, ‘On the List and Forms of and the Procedure for Compiling and Presenting Credit Institution Reports to the Central Bank of the Russian Federation’.

2012



Therefore, the results demonstrated by particular segments of the derivatives market in their development differed considerably in 2012. Although the volumes of transactions with stock derivatives contracted, they steadily exceeded the volume of spot operations in the Russian equity market. The situation in the underlying asset markets was conducive to the development of the futures market’s foreign exchange and interest rate segments, which showed an increase in the volume of trades and open positions (in contracts). These trends contributed to some decrease in the disproportions of the turnover structure of the derivatives exchange market linked with the dominance of RTS index futures. The amendments introduced by the Bank of Russia to certain regulations helped streamline credit institutions’ operations in the derivatives market. At the same time, the prevalence of short-term speculative deals and, correspondingly, the limited presence of large hedgers continued to have a negative effect on the derivatives exchange market. *** As before, the development of the Russian derivatives exchange market in 2013 will depend on trends in the markets of underlying assets, and also regulatory control. Operations with currency derivatives are expected to expand, if the rouble’s exchange rate against major world currencies becomes more volatile. The Moscow Exchange’s increased attention to promoting contracts on OFZ baskets may help further develop the segment of interest rate futures. The amendments introduced by the Bank of Russia to its regulations on credit institutions’ operations with derivatives may contribute to improving the mechanism of regulation and supervision over banks’ risks in this segment of the financial market amid a possible growth of their interest in making investments in derivatives.

51

Addendum

Table 1

Russian capital market (as of end of period, billions of roubles) Segment 1. Bank loans to non-financial organisations and households (outstanding debt)

2003

2004

2005

2006

2007

2008

2009

2010

2011

2,675

3,886

5,453

8,031

2,426

3,348

4,397

6,148

9,316

12,510

12,542

14,063

17,715

1,056

1,883

2,971

4,017

3,574

4,085

5,551

12,287 16,527 16,115 18,148 23,266

2012 1 27,387

Of which: –  loans to non-financial organisations –  loans to households

19,823

249

538

2. Non-government securities (outstanding volume)

7,123

8,459

2.1. Debt securities (except bonds) issued by banks

616

609

676

148

99

55

33

30

12

19

15

13

11

2

4

7

16

21

16

14

12

10

192

15,939 28,784 37,111 16,748 29,486 37,434 33,759 840

856

772

769

811

866

7,564 34,052 1,325

Of which: –  certificates of deposit –  savings certificates –  promissory notes and bank acceptances 2.2. Equity market capitalisation

466

506

615

790

806

743

735

783

843

1,121

5,807

6,867

13,549

25,315

32,617

11,017

23,091

30,189

25,708

24,051

2.3. Corporate bonds in circulation in the domestic market

160

263

481

906

1,272

1,815

2,569

2,965

3,437

4,057

2.4. Corporate Eurobonds

378

628

1,167

1,663

2,315

3,049

3,006

3,416

3,716

4,587

12.8

22.6

40.5

63.1

94.3

103.8

99.4

112.1

115.4

148.9

–  billions of US dollars 2.5. Non-bank promissory notes of residents (except government bodies) discounted by banks 3. Government securities (outstanding volume, at par) 3.1. Government (federal) bonds denominated in roubles (GKO-OFZ, OVOZ)

163

91

65

61

51

94

52

53

33

33

1,692

1,894

2,020

2,051

2,092

2,330

2,743

3,491

4,209

4,622

315

558

722

876

1,047

1,144

1,470

2,054

2,893

3,200

1,267

1,179

1,111

969

812

867

847

982

940

1,076

–  Eurobonds of the Russian Federation, billions of US dollars

35.7

35.3

31.5

31.9

28.6

27.7

26.2

30.5

29.2

34.9

–  OVGVZ and OGVZ, billions of US dollars

7.3

7.1

7.1

4.9

4.5

1.8

1.8

1.8

0.02

0.01

111

158

187

207

233

318

426

454

375

3.2. Government (federal) bonds denominated in foreign currency Of which:

3.3. Sub-federal and municipal bonds denominated in roubles and foreign currency Total for capital market

11,490 14,239 23,412 38,865 51,490 35,604 48,344 59,072 61,234

346 66,061

Memo item: : Nominal GDP Capital market depth to GDP ratio, %

13,208

17,027

21,610

26,917

33,248

41,277

38,807

45,173

54,586

61,028 2

87

84

108

144

155

86

125

131

112

108

As of 30 November 2012. 2 Estimate by the Bank of Russia Research and Information Department. Source: Bank of Russia, Russian Ministry of Finance, FFMS of Russia, Rosstat, Moscow Exchange, Cbonds.ru, calculations by the Bank of Russia Research and Information Department. 1

52

2012

Addendum

Parameters and results of OFZ auctions in 2012 Security Auction date registered number

18.01.12 25.01.12 1.02.12 8.02.12 15.02.12 22.02.12 7.03.12 14.03.12 21.03.12 28.03.12 4.04.12 11.04.12 18.04.12 25.04.12 6.06.12 14.06.12 20.06.12 27.06.12 4.07.12 4.07.12 11.07.12 11.07.12 18.07.12 18.07.12 25.07.12 1.08.12 1.08.12 8.08.12 8.08.12 15.08.12 22.08.12 29.08.12 5.09.12 12.09.12 12.09.12 19.09.12 26.09.12 3.10.12 10.10.12 17.10.12 17.10.12 31.10.12 7.11.12 14.11.12 21.11.12 28.11.12 5.12.12 12.12.12 12.12.12 19.12.12 19.12.12

25079 26206 26205 26205 26206 26207 26208 26206 26208 25079 26207 26205 26208 25080 25079 26205 26208 25080 26205 25080 26207 25080 26208 26207 25080 25080 26209 26208 26207 25080 26208 25080 26209 26208 26207 26209 25080 26207 26209 26207 25080 26208 26209 26207 26208 25080 26207 25080 26209 26207 26210

Issue amount, billions of roubles

Maturity, years

Maturity date

Bids (par amount), billions of roubles

Bids (market value), billions of roubles

Allotment (par amount), billions of roubles

Allotment (market value), billions of roubles

20.0 20.0 35.0 35.0 20.0 10.0 45.0 19.3 35.0 10.0 20.0 35.8 10.0 35.0 10.0 15.0 39.0 35.0 17.0 15.0 15.0 20.0 15.0 15.0 15.0 35.0 15.0 15.0 15.0 15.0 15.0 10.0 25.0 20.0 10.0 25.0 20.0 25.0 35.0 20.0 20.0 30.0 35.0 25.0 35.0 15.0 25.0 20.0 30.0 16.5 30.0

3.4 5.4 9.2 9.2 5.3 15.0 7.8 5.3 7.8 3.2 14.8 9.0 6.9 5.0 3.0 8.8 6.7 4.8 8.8 4.8 14.6 4.8 6.6 14.6 4.7 4.7 10.0 6.6 14.5 4.7 6.5 4.6 9.9 6.5 14.4 9.8 4.6 14.3 9.8 14.3 4.5 6.3 9.7 14.2 6.3 4.4 14.2 4.4 9.6 14.1 7.0

3.06.15 14.06.17 14.04.21 14.04.21 14.06.17 3.02.27 27.12.19 14.06.17 27.12.19 3.06.15 3.02.27 14.04.21 27.02.19 19.04.17 3.06.15 14.04.21 27.02.19 19.04.17 14.04.21 19.04.17 3.02.27 19.04.17 27.02.19 3.02.27 19.04.17 19.04.17 20.07.22 27.02.19 3.02.27 19.04.17 27.02.19 19.04.17 20.07.22 27.02.19 3.02.27 20.07.22 19.04.17 3.02.27 20.07.22 3.02.27 19.04.17 27.02.19 20.07.22 3.02.27 27.02.19 19.04.17 3.02.27 19.04.17 20.07.22 3.02.27 11.12.19

44.767 41.269 192.219 92.099 27.253 50.490 9.126 71.364 7.209 61.115 39.546 4.825 13.573 9.705 18.831 20.836 28.732 23.096 81.461 42.924 34.050 26.002 59.185 39.571 13.081 19.109 14.429 35.124 20.915 6.502 18.065 3.313 91.889 13.177 45.883 19.579 30.517 41.509 63.154 118.842 38.444 52.221 94.818 20.485 190.806 69.702 22.549 98.483 172.896 12.74 39.96

44.200 40.358 180.280 91.220 27.391 48.200 9.032 71.890 7.181 62.255 39.485 4.917 13.550 9.653 18.531 19.437 27.781 22.104 77.314 42.211 32.497 25.217 59.141 39.944 12.035 18.764 13.763 35.206 21.399 6.628 17.608 3.388 87.732 12.504 44.121 19.329 31.215 41.141 63.557 122.672 40.455 53.769 97.352 21.480 196.790 71.324 24.590 97.872 178.828 13.827 40.438

18.566 19.838 34.942 34.469 18.824 9.802 8.009 19.193 2.968 9.278 17.926 4.575 6.819 6.452 8.711 13.647 21.692 13.853 16.749 14.985 11.437 18.120 14.615 14.540 2.724 13.010 9.323 14.763 13.595 6.502 8.464 2.608 23.971 3.064 9.903 10.649 19.160 18.564 34.230 19.635 19.099 29.798 33.405 9.027 32.544 13.499 9.091 19.989 30.000 6.564 21.439

18.427 19.564 34.563 35.190 19.076 9.801 7.966 19.582 2.975 9.488 18.284 4.663 6.831 6.439 8.600 13.064 21.303 13.639 16.491 15.032 11.493 18.186 14.933 15.036 2.735 13.194 9.214 15.192 14.179 6.628 8.691 2.671 23.735 3.063 10.088 10.662 19.760 18.877 34.624 20.550 20.167 30.744 34.80 9.64 33.96 13.95 10.35 20.95 32.73 7.46 21.79

Table 2

Premium (+) / discount Weighted (-) to bond Cut-off Weighted average Cut-off yield, issue yield price, % of average price, % of % p.a. in the par value yield, % p.a. par value secondary market, basis points 98.37 98.45 7.69 7.67 2 97.86 97.90 8.05 8.04 1 96.85 96.87 8.25 8.25 0 99.70 99.90 7.79 7.76 1 100.12 100.20 7.50 7.49 -2 99.90 99.99 8.33 8.32 99.42 99.46 7.75 7.75 100.27 100.32 7.47 7.46 -1 99.93 99.96 7.65 7.65 -1 100.10 100.11 7.08 7.08 -4 100.91 101.06 8.20 8.19 6 98.41 98.43 8.00 8.00 1 99.26 99.31 7.78 7.78 0 99.73 99.80 7.60 7.59 98.67 98.72 7.64 7.62 11 94.62 94.69 8.65 8.64 3 96.02 96.05 8.45 8.45 2 97.16 97.18 8.28 8.28 3 96.96 97.00 8.25 8.24 -5 98.85 98.90 7.84 7.82 -4 97.30 97.36 8.65 8.65 4 98.67 98.80 7.88 7.85 -1 99.41 99.45 7.76 7.75 -3 100.05 100.13 8.31 8.30 1 98.55 98.57 7.92 7.91 -1 99.43 99.43 7.68 7.68 -4 98.82 98.83 7.92 7.92 99.70 99.74 7.70 7.69 -2 100.50 100.54 8.25 8.25 1 99.66 99.66 7.62 7.62 2 99.20 99.22 7.80 7.80 2 99.85 99.86 7.57 7.57 0 98.23 98.29 8.02 8.01 -4 99.79 99.81 7.68 7.68 0 101.30 101.40 8.16 8.14 0 99.07 99.10 7.88 7.88 1 99.96 100.01 7.55 7.53 -1 100.65 100.75 8.23 8.22 2 99.45 99.69 7.83 7.79 -1 103.34 103.41 7.91 7.90 -6 102.02 102.04 6.99 6.98 -9 101.99 102.03 7.23 7.22 0 102.01 102.14 7.44 7.42 -1 104.89 104.94 7.72 7.72 0 102.75 102.77 7.07 7.07 -3 102.65 102.66 6.80 6.8 -8 111.31 111.47 7.00 6.99 -4 103.67 103.83 6.52 6.48 -3 106.20 106.34 6.83 6.81 -8 111.01 111.06 7.03 7.03 1 101.56 101.66 6.62 6.61 -

Source: Russian Ministry of Finance, Bank of Russia, Moscow Exchange, calculations by the Bank of Russia Research and Information Department.

2012



53

Financial market review

Table 3

Characteristics of Russian regional bond issues placed on the Moscow Exchange in 20121 Date

Issuer’s rating 2 Issuer

Moody's

S&P

Fitch

placement commencement

Volume, billions of roubles redemption

issue volume

placement volume at par

placement volume at actual prices

First coupon rate, % p.a.

Yaroslavl Region

–

–

BB

19.04.2011

15.04.2014

3.00

1.18

1.16

8.00

Kostroma Region

–

–

B+

24.11.2011

17.11.2016

4.00

1.87

1.88

9.50

Republic of Komi

Ba2

–

BB+

15.12.2011

15.12.2016

2.10

0.95

0.95

9.50

Volgograd Region

–

Recalled

BB-

04.05.2012

28.05.2017

5.00

5.00

5.00

8.99

Recalled

BB

BB+

17.05.2012

17.05.2017

2.50

2.50

2.50

8.77

Republic of Sakha (Yakutia)

–

BB

Recalled

01.06.2012

26.05.2017

2.50

1.11

1.11

9.00

Chuvash Republic

Lipetsk Region

Ba2

–

–

18.07.2012

19.07.2015

1.50

1.50

1.51

9.25

Samara Region

Ba1

BB+

–

20.06.2012

13.12.2017

15.00

10.00

10.00

9.00

–

–

BB-

09.08.2012

09.08.2015

2.00

2.00

2.00

9.20

Republic of Khakassia Belgorod Region

Ba1

–

-

14.08.2012

08.08.2017

5.00

5.00

5.00

8.00

Yaroslavl Region

–

–

BB

24.08.2012

21.08.2015

3.00

3.00

3.00

9.10 9.67

Volgograd

29.08.2012

23.08.2017

1.00

1.00

1.00

Nizhni Novgorod Region

Ba3 –

Recalled

BB-

29.08.2012

29.08.2017

8.00

8.00

8.00

9.85

Novosibirsk

–

BB

–

07.09.2012

06.09.2017

2.00

2.00

2.00

8.44

Tula Region

–

–

BB-

25.09.2012

25.09.2015

5.00

5.00

5.00

8.60

Republic of Mari El

–

–

BB

04.10.2012

04.10.2015

1.50

1.50

1.50

9.21

Republic of Karelia

–

Recalled

BB-

23.10.2012

22.10.2017

1.50

1.50

1.50

9.15

Krasnoyarsk Territory

–

BB+

BB+

25.10.2012

19.10.2017

16.91

16.91

16.91

9.00

Krasnodar Territory

Ba1

Suspended

BB+

15.11.2012

09.11.2017

12.00

8.55

8.55

8.95

Republic of Bashkortostan

Ba1

BB+

–

04.12.2012

29.11.2016

3.00

3.00

3.00

8.85 10.00

Tomsk

–

–

–

04.12.2012

29.11.2016

1.00

0.80

0.80

Recalled

BB+

–

5.12.2012

4.12.2017

3.00

3.00

3.00

8.95

Baa1

BBB

BBB

6.12.2012

1.06.2017

7.00

7.00

7.00

7.94

Vologda Region

Ba2

Recalled

Recalled

11.12.2012

5.12.2017

4.60

4.60

4.60

9.75

Udmurt Republic

Recalled

–

BB+

11.12.2012

5.12.2017

2.50

2.50

2.50

9.10

Sverdlovsk Region St Petersburg

Voronezh Region

–

–

BB

18.12.2012

17.12.2017

5.00

0.23

0.23

7.85

Stavropol Territory

–

B+

–

18.12.2012

12.12.2017

5.00

5.00

5.00

9.20

Orenburg Region

–

–

BB

20.12.2012

14.12.2017

4.00

4.00

4.00

9.20

Ryazan Region

–

–

B+

20.12.2012

14.12.2017

2.50

0.03

0.03

9.50

Tomsk Region

–

BB

–

20.12.2012

19.12.2017

5.00

3.00

3.00

8.60

Tver Region

–

B+

–

24.12.2012

18.12.2017

3.00

3.00

3.00

9.70

Ba3 to Baa1

BB to BBB

B+ to BBB

2011-2012

2014-2017

New issues – 130.01 billion roubles

114.72 billion roubles, of which new issues – 110.72 billion roubles

114.72 billion roubles, of which new issues – 110.73 billion roubles

7.85 to 10.00

Total

1

As of 24 December 2012.

2

As of the moment of bond placement/additional placement.

Additional bond placement is set off in italics. Municipal bonds are set off in shading. Source: Russian Ministry of Finance, Moscow Exchange, Moody’s, S&P, Fitch, Cbonds.ru.

54

2012

Addendum

Table 4

Characteristics of corporate bond issues placed in the domestic market in January-November 2012 Type of issuer’s economic activity

Issuer Transaero JSC

Aviation

UTair-Finance

Alrosa Mining industry

Metalloinvest Holding Company Nizhne-Lenskoye-Invest NMTP

Railway transport

NPK RZhD Zapsibcombank Nomos-Bank NOTA-Bank Asian-Pacific Bank InterProgressBank Absolut Bank IntrustBank Rossiysky Capital VTB 24

Gazprombank

Credit institutions

Banca Intesa Russian Standard Bank DeltaCredit CB Credit Europe Bank TUSAR Bank Novikombank UniCredit Bank CB LOCKO-Bank CB Neftyanoy Alliance CB Renaissance Capital Tatfondbank JSICB

2012



Date of placement commencement 6.03.2012 25.04.2012 25.04.2012 29.05.2012 29.05.2012 16.11.2012 16.11.2012 2.11.2012 2.11.2012 19.03.2012 19.03.2012 22.03.2012 16.11.2012 2.05.2012 6.03.2012 6.03.2012 20.07.2012 17.08.2012 9.08.2012 15.02.2012 27.04.2012 14.06.2012 26.03.2012 18.04.2012 25.10.2012 14.09.2012 14.09.2012 1.02.2012 12.07.2012 18.10.2012 18.10.2012 18.10.2012 22.10.2012 10.04.2012 25.10.2012 27.03.2012 3.05.2012 7.08.2012 10.02.2012 9.10.2012 15.05.2012 11.10.2012 2.03.2012 7.03.2012 26.10.2012 30.10.2012 14.08.2012 19.04.2012 9.08.2012 21.02.2012 10.04.2012 16.10.2012

Redemption date 3.03.2015 22.04.2015 22.04.2015 26.05.2015 26.05.2015 13.11.2015 13.11.2015 30.10.2015 30.10.2015 7.03.2022 7.03.2022 10.03.2021 10.11.2017 29.04.2015 3.03.2015 3.03.2015 25.06.2032 14.08.2015 9.08.2015 12.02.2014 30.04.2015 22.06.2022 26.03.2015 21.04.2015 28.10.2015 15.09.2044 15.09.2044 1.02.2015 7.07.2016 12.10.2017 10.10.2019 6.10.2022 17.10.2016 13.04.2015 25.10.2015 24.03.2015 3.05.2015 7.08.2015 3.11.2014 9.10.2015 8.08.2017 11.10.2015 27.02.2015 4.03.2015 23.10.2015 27.10.2015 11.08.2015 27.04.2022 9.08.2015 17.02.2015 7.04.2015 13.10.2015

Placement volume at par, billions of roubles1 2.5 1.5 1.5 1.5 1.0 1.5 1.5 5.0 5.0 10.0 5.0 10.0 0.00004 4.0 5.0 5.0 10.0 2.0 5.0 1.0 1.5 0.5 3.0 0.5 3.0 4.0 2.0 10.0 10.0 10.0 10.0 10.0 10.0 5.0 3.0 5.0 5.0 4.0 5.0 5.0 0.5 2.0 5.0 5.0 5.0 5.0 3.0 0.3 2.0 3.0 2.0 2.0

First coupon rate, % p.a. 12.5 10.0 10.0 10.0 8.7 11.8 11.8 8.9 8.9 9.0 9.0 9.0 14.0 9.0 10.0 10.0 9.0 12.5 9.2 11.0 10.3 11.0 9.0 12.5 10.8 9.0 3.0 8.5 8.5 8.5 8.5 8.5 9.0 9.8 9.0 9.4 9.3 10.0 9.8 12.0 10.3 8.5 8.5 9.1 9.1 10.8 11.0 11.3 11.0 13.0

Placement site

Moscow Exchange

OTC market

Moscow Exchange

OTC market

Moscow Exchange

55

Financial market review

Continued Type of issuer’s economic activity

Issuer AK BARS Bank Alfa-Bank Bank St Petersburg Metcombank Metcombank Credit Bank of Moscow SME Bank OTP Bank Pervobank Promsvyazbank SMP Bank UBRD URALSIB

Rosselkhozbank

Credit institutions

Metallinvestbank Probusinessbank Rosbank Sviaz-Bank

Bank Petrocommerce

VTB Bank

Bank ZENIT CB Vostochny CB Centre-Invest Vneshprombank Rusfinance Bank CB Koltso Urala Svyaznoy Bank TCS Bank

56

Date of placement commencement 18.10.2012 31.08.2012 28.09.2012 8.10.2012 12.04.2012 9.10.2012 27.04.2012 25.09.2012 29.03.2012 23.08.2012 6.03.2012 25.09.2012 22.02.2012 22.02.2012 9.08.2012 6.09.2012 29.05.2012 2.10.2012 16.03.2012 31.08.2012 7.02.2012 9.02.2012 16.04.2012 23.10.2012 25.10.2012 19.06.2012 4.09.2012 12.09.2012 19.04.2012 25.04.2012 1.11.2012 6.03.2012 23.08.2012 23.08.2012 27.01.2012 20.03.2012 20.03.2012 4.09.2012 4.10.2012 4.10.2012 7.02.2012 14.02.2012 12.04.2012 29.08.2012 17.08.2012 19.04.2012 26.10.2012 6.03.2012 2.11.2012 27.04.2012 09.08.2012 19.04.2012 17.07.2012

Redemption date 15.10.2015 31.08.2015 28.09.2015 5.10.2015 15.04.2015 6.10.2015 27.04.2015 25.09.2015 17.03.2022 11.08.2022 3.03.2015 22.09.2015 18.02.2015 18.02.2015 1.02.2018 6.09.2015 23.05.2017 29.09.2015 10.03.2017 25.08.2017 3.02.2015 5.02.2015 4.04.2022 11.10.2022 13.10.2022 22.06.2015 5.09.2015 12.09.2015 7.04.2022 13.04.2022 1.11.2015 3.03.2015 23.08.2015 23.08.2015 23.01.2015 17.03.2015 17.03.2015 1.09.2015 1.10.2015 1.10.2015 7.02.2015 14.02.2015 12.04.2015 23.08.2017 14.08.2015 16.04.2015 26.10.2015 06.03.2015 2.11.2015 30.04.2015 6.08.2015 16.04.2015 14.07.2015

Placement volume at par, billions of roubles1 5.0 5.0 10.0 5.0 2.0 1.5 4.0 3.0 5.0 5.0 6.0 2.0 5.0 5.0 5.0 5.0 3.0 2.0 5.0 7.0 5.0 5.0 10.0 10.0 5.0 1.5 2.0 10.0 5.0 5.0 5.0 3.0 3.0 5.0 10.0 5.0 5.0 10.0 15.0 15.0 3.0 3.0 5.0 5.0 3.0 1.5 3.0 4.0 4.0 1.0 2.0 1.5 2.0

First coupon rate, % p.a. 9.7 8.6 8.5 9.5 10.8 9.3 9.8 8.7 9.2 10.5 11.0 8.8 8.8 12.3 10.2 10.3 12.5 8.8 9.7 8.2 8.2 8.6 8.4 8.4 10.2 11.8 9.3 9.5 8.8 9.0 8.9 8.0 8.0 8.0 8.4 8.9 8.9 9.2 9.2 11.0 9.7 12.0 8.8 10.0 11.5 14.3 13.3 13.9

Placement site

Moscow Exchange

2012

Addendum

Continued Type of issuer’s economic activity Machine-building

Issuer Hydromashservice KamAZ UOMZ PA

Mechel Metallurgy MMK NLMK Russian Sea Group Sinergia Zheldoripoteka ARTUG Glavnaya doroga

Food industry

LSR Group Construction industry

WHSD OIGK Ladya-Finance Mir stroitelnykh tekhnologiy RSG-Finance SU-155 Capital VimpelCom

Tele2-St Petersburg Communications Rostelecom MegaFon Finance Russian Post’ Gazprom Neft Rosneft Oil and gas

NOVATEK YaTEK Bashneft Magnit X5 Finance

Retail trade

Mortgage Agent of AHML 2011-1 Finance companies Mortgage Agent ITB 1 Mortgage Agent Uralsib 01

2012



Date of placement commencement 17.02.2012 4.10.2012 24.04.2012 14.02.2012 10.04.2012 10.04.2012 10.04.2012 10.04.2012 10.04.2012 16.02.2012 10.09.2012 17.09.2012 26.06.2012 6.06.2012 14.09.2012 17.07.2012 20.11.2012 14.09.2012 26.10.2012 2.03.2012 2.03.2012 2.03.2012 14.02.2012 4.07.2012 21.03.2012 16.10.2012 21.05.2012 20.03.2012 20.03.2012 26.03.2012 13.02.2012 13.02.2012 17.04.2012 8.11.2012 11.10.2012 26.10.2012 26.10.2012 26.10.2012 7.02.2012 29.10.2012 29.10.2012 15.10.2012 15.10.2012 15.10.2012 30.10.2012 17.02.2012 24.09.2012 4.10.2012 28.11.2012 27.07.2012 27.07.2012 27.07.2012 27.11.2012 17.07.2012

Redemption date 13.02.2015 1.10.2015 21.04.2015 10.02.2015 7.04.2015 7.04.2015 7.04.2015 7.04.2015 7.04.2015 12.02.2015 7.09.2015 5.09.2022 23.06.2015 3.06.2015 11.09.2015 14.07.2015 30.10.2029 8.09.2017 20.10.2017 6.02.2032 6.02.2032 6.02.2032 7.02.2017 1.07.2015 25.06.2019 13.10.2015 18.05.2015 8.03.2022 8.03.2022 14.03.2022 31.01.2022 31.01.2022 5.04.2022 2.11.2017 29.09.2022 18.10.2019 18.10.2019 18.10.2019 25.01.2022 17.10.2022 17.10.2022 12.10.2015 12.10.2015 12.10.2015 27.10.2015 4.02.2022 21.09.2015 1.10.2015 25.05.2045 22.01.2044 22.01.2044 22.01.2044 03.08.2045 15.04.2045

Placement volume at par, billions of roubles1 3.0 2.0 1.2 5.0 5.0 2.0 3.0 3.0 2.0 5.0 5.0 5.0 1.0 2.0 1.4 0.5 1.4 3.0 2.8 5.0 5.0 5.0 1.4 0.5 1.0 2.5 1.0 10.0 15.0 10.0 4.0 3.0 6.0 10.0 10.0 3.0 3.0 3.0 10.0 10.0 10.0 10.0 5.0 5.0 0.4 10.0 5.0 5.0 0.5 1.3 5.9 5.9 0.9 1.1

First coupon rate, % p.a. 10.8 10.5 10.5 10.3 11.3 11.3 11.3 11.3 11.3 8.2 8.5 12.5 11.0 11.0 14.0 10.0 11.5 11.3 9.2 9.2 9.2 11.0 12.0 3.0 13.8 12.8 8.9 8.9 8.9 8.9 8.9 9.1 8.6 8.1 8.7 8.7 8.7 8.3 8.6 8.6 8.4 8.4 8.4 12.0 9.0 8.9 9.5 10.7 9.0 5.5 26.5

Placement site

Moscow Exchange

OTC market

Moscow Exchange

OTC market

57

Financial market review

Continued Type of issuer’s economic activity

Issuer Vesta Europlan Mortgage Agent of AHML 2011-1 Priam RTC Mortgage Agent ITB 1 Mortgage Agent Uralsib 01 KIT Finance Capital AHML

VEB-Leasing

Otkritie FC Finance companies Uralsib Leasing Company

VTB Capital Finance Domashnie Dengi IS-Broker Carcade LR-Invest Prime Finance

TransFin-M

Mercury FC Element Leasing RESO-Garantia Chemical industry

Akron Lenenergo MOESK

Power engineering

IDGC of Centre TGC-1

FGC UES

58

Date of placement commencement 23.12.2011 6.11.2012 28.11.2012 28.11.2012 22.12.2011 23.01.2012 26.07.2012 5.09.2012 27.11.2012 17.07.2012 29.05.2012 29.03.2012 9.04.2012 7.02.2012 6.07.2012 6.07.2012 6.07.2012 6.07.2012 23.10.2012 23.10.2012 5.10.2012 16.01.2012 9.02.2012 14.02.2012 21.02.2012 25.04.2012 8.06.2012 21.08.2012 26.11.2012 3.05.2012 22.06.2012 20.04.2012 16.04.2012 1.06.2012 7.08.2012 30.08.2012 24.09.2012 24.09.2012 29.10.2012 30.11.2012 27.11.2012 6.09.2012 3.09.2012 25.09.2012 16.10.2012 24.04.2012 21.09.2012 29.10.2012 17.10.2012 27.02.2012 27.04.2012 8.08.2012 2.10.2012 24.10.2012 24.10.2012

Redemption date 4.12.2026 31.10.2017 25.05.2045 25.05.2045 3.12.2026 4.01.2027 8.07.2027 18.08.2027 3.08.2045 15.04.2045 24.11.2015 15.07.2024 15.02.2020 31.01.2017 30.06.2017 30.06.2017 30.06.2017 30.06.2017 17.10.2017 17.10.2017 29.09.2017 12.01.2015 5.02.2015 10.02.2015 17.02.2015 22.04.2015 27.05.2022 21.12.2015 6.12.2013 30.04.2015 21.06.2017 17.04.2015 13.04.2015 29.05.2015 4.08.2015 27.08.2015 21.09.2015 21.09.2015 26.10.2015 27.11.2015 28.11.2019 3.09.2015 22.08.2022 13.09.2022 13.10.2015 18.04.2017 18.09.2015 26.10.2015 14.10.2015 14.02.2022 19.04.2019 21.07.2027 14.09.2027 6.10.2027 21.10.2015

Placement volume at par, billions of roubles1 0.2 3.5 3.2 1.6 0.2 5.0 20.0 10.0 2.4 4.3 0.8 15.0 15.0 10.0 3.2 3.2 3.2 3.2 3.1 3.1 7.0 2.0 3.0 3.0 1.5 2.0 5.0 1.0 1.0 1.0 0.1 1.5 0.5 11.8 2.0 0.5 2.0 2.0 1.3 0.5 0.4 1.0 5.0 5.0 5.0 3.0 5.0 5.0 4.0 2.0 10.0 10.0 15.0 10.0 10.0

First coupon rate, % p.a. 10.2 11.3 9.0 3.0 9.0 11.0 8.0 2.0 8.8 8.8 11.0 7.7 8.8 9.0 5.5 5.5 5.5 5.5 5.5 5.5 10.3 11.5 11.5 11.5 11.5 11.0 0.1 0.1 0.1 19.0 10.0 13.0 12.0 9.0 10.5 10.5 10.5 10.5 10.5 10.5 13.5 9.8 8.7 9.8 8.5 8.8 8.8 9.0 7.6 8.1 9.0 8.6 8.8 8.1

Placement site

Moscow Exchange

2012

Addendum

End Type of issuer’s economic activity

Issuer

Vnesheconombank2

Eurasian Development Bank3 Volga-Sport Upravlenie otkhodami-NN Other International Finance Corporation (IFC)3 Rusnano AgroComplex Computer Technology Soft Toy World Total

Date of placement commencement 21.02.2012 13.03.2012 12.10.2012 18.10.2012 6.02.2012 1.03.2012 30.10.2012 27.06.2012 27.11.2012 27.11.2012 27.11.2012 18.04.2012 18.04.2012 30.07.2012 20.01.2012 5.07.2012 4.09.2012 JanuaryNovember 2012

Redemption date 20.02.2015 17.02.2032 17.09.2032 23.09.2032 28.01.2019 21.02.2019 29.02.2024 15.06.2022 26.11.2017 26.11.2017 26.11.2017 10.04.2019 10.04.2019 29.07.2019 13.01.2017 27.06.2019 1.09.2015 12.20138.2045

Placement volume at par, billions of roubles1 14.9 15.0 10.0 10.0 5.0 5.0 1.9 1.0 5.0 5.0 3.0 10.0 10.0 0.3 3.1 0.2 0.5 1,069.4

First coupon rate, % p.a. 3.3 8.4 8.6 8.6 8.5 8.5 11.0 11.0 3.0 3.0 3.0 8.6 8.6 10.0 11.0 9.5 15.0

Placement site

Moscow Exchange

OTC market Moscow Exchange

0.1-26.5

 The bond issues placed on the Moscow Exchange indicate placement volumes at par. The bond issues placed in the OTC market indicate issue volumes.

1

 State corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’.

2

 An international finance organisation.

3

Source: Moscow Exchange, Cbonds.ru.

2012



59

Financial market review

Table 5

Characteristics of Russian corporate Eurobond issues in January-November 2012 Issuer Brunswick Rail Potok8

Issue volume, mln currency units

Currency

Date of placement completion

600

USD

25.10.2012

1.11.2017

6.5

London Stock Exchange

14,500

RUR

20.03.2012

25.06.2019

3.1

Frankfurt Stock Exchange

Redemption date

Coupon rate, % p.a.

Placement site

SovCo Capital Partners B.V.

75

USD

18.05.2012

25.05.2015

15.0

OTC market, private placement

Vostok Energy

53

USD

13.01.2012

13.04.2013

10.0

London Stock Exchange

600

USD

13.07.2012

13.07.2022

8.0

500

USD

9.11.2012

19.11.2015

8.8

AK BARS Bank

Alrosa

Alfa-Bank

AFK Sistema

Russian Standard Bank

B&N Bank Vnesheconombank

VTB Bank

VTB 24 VTB Capital

725

USD

14.03.2012

21.12.2012

discount

315

USD

14.03.2012

20.03.2013

discount

260

USD

15.03.2012

22.10.2012

discount

200

USD

14.06.2012

18.06.2013

0.0

100

USD

18.07.2012

22.07.2013

0.0

140

USD

11.09.2012

13.09.2013

0.0

750

USD

19.09.2012

26.09.2019

7.5

500

USD

11.05.2012

17.05.2019

7.0

150

USD

3.04.2012

9.04.2013

discount

350

USD

3.10.2012

10.04.2018

10.8

525

USD

7.11.2012

11.07.2017

9.3

101

USD

17.10.2012

24.10.2018

11.0

40

USD

27.07.2012

1.02.2013

discount

750

USD

2.02.2012

13.02.2017

5.4

1,000

USD

27.06.2012

5.07.2022

6.0

Irish Stock Exchange

OTC market

Irish Stock Exchange OTC market Irish Stock Exchange OTC market Irish Stock Exchange

1,500

USD

4.04.2012

12.04.2017

6.0

400

SGD

13.07.2012

20.07.2015

4.0

2,250

USD

26.07.2012

permanent

9.5

2,000

USD

1.08.2012

12.04.2017

6.0

600

CHF

28.08.2012

16.12.2016

3.2

125

USD

25.09.2012

30.09.2013

discount

35

USD

27.09.2012

17.09.2014

2.8

1,500

USD

4.10.2012

17.10.2022

7.0

Irish Stock Exchange

26

USD

12.10.2012

15.10.2013

0.0

OTC market

1,000

CNY

16.10.2012

30.10.2015

4.5

Irish Stock Exchange

12

USD

8.11.2012

8.11.2013

discount

14

USD

19.11.2012

20.11.2013

discount

15

USD

27.11.2012

27.11.2013

discount discount

n/a Irish Stock Exchange n/a OTC market

OTC market

19

USD

28.11.2012

3.06.2013

275

USD

25.07.2012

25.07.2014

100

USD

17.02.2012

19.02.2013

2.5

OTC market

n/a

700

RUR

27.02.2012

20.09.2015

11.9

n/a

300

TRY

23.04.2012

17.04.2015

11.3

Istanbul Exchange

1,000

USD

12.07.2012

19.07.2022

5.0

Gazprom

1,400

EUR

26.07.2012

15.03.2017

3.8

600

USD

21.09.2012

27.12.2012

discount

Gazprom Neft

1,500

USD

10.09.2012

19.09.2022

4.4

500

USD

27.04.2012

3.05.2019

7.3

Gazprombank

Globex Bank

60

Irish Stock Exchange OTC market Irish Stock Exchange

400

USD

21.06.2012

27.06.2013

0.0

OTC market

13,500

RUR

27.06.2012

29.06.2019

8.8

Irish Stock Exchange

500

CHF

10.07.2012

5.08.2015

3.4

Swiss Exchange

15,000

RUR

18.09.2012

15.12.2015

8.6

1,000

USD

19.10.2012

permanent

7.9

1,000

USD

17.07.2012

17.05.2017

5.6

50

USD

18.05.2012

17.05.2013

discount

Irish Stock Exchange n/a

2012

Addendum

End Issue volume, mln currency units

Issuer Globex Bank

Currency

Date of placement completion

Redemption date

Coupon rate, % p.a.

40

USD

23.05.2012

22.05.2013

discount

50

USD

7.09.2012

13.06.2013

discount

50

USD

14.09.2012

19.09.2013

discount

Placement site n/a Внебиржевой рынок

Evraz Group

600

USD

17.04.2012

24.04.2017

7.4

London Stock Exchange

Credit Europe Bank

250

USD

8.11.2012

15.11.2019

8.5

Irish Stock Exchange

Mikro Kapital

1

EUR

7.02.2012

8.10.2013

10.0

1

EUR

8.02.2012

8.04.2014

10.5

1

EUR

22.03.2012

23.09.2013

10.0

1

EUR

30.03.2012

31.03.2014

10.5

1

USD

6.04.2012

7.10.2013

10.0

1

EUR

27.04.2012

28.10.2013

10.0

1

EUR

22.05.2012

23.11.2013

10.0

5

CHF

6.07.2012

7.01.2014

9.0

1

EUR

13.07.2012

14.01.2014

10.0

2

USD

17.07.2012

18.07.2014

10.5

2

EUR

19.07.2012

19.07.2014

8.0

1

CHF

23.07.2012

24.07.2014

9.0

Novolipetsk Steel

500

USD

19.09.2012

26.09.2019

5.0

Nomos Bank

500

USD

19.04.2012

26.04.2019

10.0

400

USD

18.04.2012

25.04.2017

8.5

400

USD

30.10.2012

6.11.2019

10.2

50

USD

8.06.2012

15.05.2017

n/a

50

USD

8.06.2012

15.05.2019

n/a

75

USD

29.06.2012

15.05.2019

n/a

Promsvyazbank

Raiffeisen Bank Raspadskaya

RZhD

Rosneft Oil Company

Rosselkhozbank

Sberbank of Russia

Severstal TCS Bank Home Credit and Finance Bank

400

USD

20.04.2012

27.04.2017

7.8

1,000

USD

29.03.2012

5.04.2022

5.7

25,000

RUR

2.04.2012

2.04.2019

8.3

1,400

USD

9.10.2012

5.04.2022

5.7

37,500

RUR

10.10.2012

2.04.2019

8.3

1,000

USD

29.11.2012

6.03.2017

3.1

2,000

USD

29.11.2012

6.03.2022

4.2

500

USD

18.06.2012

27.12.2017

5.5

450

CHF

2.08.2012

17.08.2015

3.1

1,300

USD

23.08.2012

27.12.2017

5.3

n/a

OTC market

n/a

Irish Stock Exchange London Stock Exchange n/a OTC market

Irish Stock Exchange

Swiss Exchange

350

USD

28.06.2012

27.12.2017

5.5

20,000

RUR

23.07.2012

17.02.2017

8.6

1,000

USD

21.06.2012

28.06.2019

5.2

1,500

USD

19.07.2012

7.02.2022

6.1

1,300

USD

9.08.2012

7.02.2017

5.0

2,000

USD

18.10.2012

29.10.2022

5.1

160

USD

8.11.2012

12.11.2013

discount

OTC market n/a

23

USD

28.11.2012

3.12.2013

discount

410

CHF

2.03.2012

14.09.2015

3.1

475

USD

19.09.2012

24.09.2017

1.0

750

USD

4.10.2012

17.10.2022

5.9

250

USD

12.09.2012

18.09.2015

10.8

125

USD

29.11.2012

6.06.2018

14.0

500

USD

17.10.2012

24.04.2020

9.4

Irish Stock Exchange

London Stock Exchange Irish Stock Exchange

Swiss Exchange London Stock Exchange Irish Stock Exchange London Stock Exchange

Source: Cbonds.ru.

2012



61

Financial market review

Table 6

Public offerings (IPOs and SPOs) in 2011-2012* Issuer HMS Group

Date of placement completion 9.02.2011

Volume of funds raised, millions of US dollars 360.5 3,268.0

Exchange

Type of placement

London Stock Exchange

Primary

MICEX Stock Exchange, RTS, London Stock Exchange

Secondary

VTB Bank

14.02.2011

WorldWide Papa’s, St Petersburg representative office

15.02.2011

19.6

Frankfurt Stock Exchange

Primary

Sinergia

4.03.2011

297.0

MICEX Stock Exchange, RTS

Secondary

Alliance Oil Company Ltd.

22.03.2011

185.0

OMX Nordic Stock Exchange

Secondary

Rusagro Group

8.04.2011

330.0

London Stock Exchange

Primary

Armada

14.04.2011

31.2

MICEX Stock Exchange, RTS

Secondary

Etalon Group

15.04.2011

575.0

London Stock Exchange

Primary Primary

Nomos Bank

18.04.2011

718.0

MICEX Stock Exchange, RTS, London Stock Exchange

Mechel

20.04.2011

528.0

MICEX Stock Exchange, RTS, New York Stock Exchange

Secondary

Mail.Ru Group

27.04.2011

450.6

London Stock Exchange

Secondary

Yandex

23.05.2011

1,435.0

Nasdaq Stock Exchange

Primary

Dixy

15.06.2011

543.1

RTS

Secondary

Global Ports Investments

23.06.2011

588.0

London Stock Exchange

Primary

PhosAgro

13.07.2011

538.0

London Stock Exchange

Primary

Platform Utinet.ru

19.07.2011

13.9

MICEX Stock Exchange

Primary

Polymetal

27.10.2011

785.0

London Stock Exchange

Primary

Magnit

12.12.2011

571.0

MICEX Stock Exchange

Secondary Primary

2011

11,236.8

RusPetro Plc

Total

20.01.2012

250.0

London Stock Exchange

Abrau-Durso

11.04.2012

0.5

MICEX-RTS

Primary

Polyus Gold

11.05.2012

635.5

London Stock Exchange

Secondary

RBC

18.06.2012

28.5

MICEX-RTS

Secondary

Globaltrans

17.07.2012

469.8

London Stock Exchange

Secondary

Sberbank of Russia

19.09.2012

5,207.5

London Stock Exchange, Moscow Exchange

Secondary

Company M. Video

20.09.2012

146.2

Moscow Exchange

Secondary

Mail.Ru Group

25.09.2012

408.0

London Stock Exchange

Secondary

MD Medical Group

15.10.2012

310.8

London Stock Exchange

Primary

Globaltrans

16.10.2012

200.0

London Stock Exchange

Secondary

MegaFon

27.11.2012

1,859.6

London Stock Exchange, Moscow Exchange

Primary

2012

9,516.3

Total * The estimate is based on data provided by Cbonds.ru and Finam.

62

2012

Addendum

Table 7

Sberbank interest rates on household deposits from June 2011 to December 2012 (as of start of period, % p.a.) 2011

Period roubles

2012

VI – X

XI – XII

I – IX

US dollars

US dollars

US dollars

euros

roubles

euros

roubles

X – XII euros

roubles

US dollars

euros

Deposit name

Description

‘Summer Offer – HighYield’ Deposit

Special offer valid from 1 June 2011 to 31 August 2011

6.00

-

-

-

-

-

-

-

-

-

-

-

Savings Account

To use your savings in any way you want and earn monthly income

1.50 –2.30

0.20– 1.15

0.20– 1.15

1.50– 2.30

0.20– 1.15

0.20– 1.15

1.50– 2.30

0.20– 1.15

0.20– 1.15

1.50– 2.30

0.20– 1.15

0.20– 1.15

‘Save’ Deposit

To earn maximum income

3.00– 6.00

1.35– 3.75

1.25– 4.50

3.75– 7.25

1.35– 3.75

1.25– 4.50

4.50– 8.00

1.35– 4.00

1.25– 4.50

5.15– 8.75

1.35– 4.00

1.25– 4.50

‘Add’ Deposit

To accumulate savings and earn income

3.00– 5.00

1.35– 3.30

1.25– 3.85

3.60– 6.50

1.35– 3.50

1.25– 4.50

4.35– 7.25

1.35– 3.75

1.25– 4.25

5.10– 8.00

1.35– 3.75

1.25– 4.25

‘Manage’ Deposit

To earn income and use part of the deposit

3.00– 4.70

1.30– 3.15

1.10– 3.75

3.25– 5.75

1.30– 3.30

1.10– 4.10

4.00– 6.50

1.30– 3.55

1.10– 4.10

4.55– 7.25

1.30– 3.55

1.10– 4.10

‘Gift of Life’ Deposit

To earn income and take part in a charity programme

5.00

-

-

6.25

-

-

7.25

-

-

8.00

-

-

‘Sberbank of Russia Multicurrency Deposit’

To earn income in the form of interest on the deposit and additional income from currency fluctuations

0.01– 4.50

0.01– 3.15

0.01– 3.75

0.01– 5.15

0.01– 3.15

0.01– 3.75

0.01– 6.15

0.01– 3.40

0.01– 3.75

0.01– 6.80

0.01– 3.40

0.01– 3.75

‘Anniversary-170’ Deposit

Special offer valid only through 31 January 2012 (inclusive)

5.50– 7.00

2.00– 3.50

2.25– 3.75

5.50– 7.00

2.00– 3.50

2.25– 3.75

-

-

-

(% p.a.)

2012



(% p.a.)

(% p.a.)

(% p.a.)

63

Financial market review

Table 8

List of new futures contracts introduced for trading on the Moscow Exchange in 2012 Month

February

Contract name Futures on Russian Depositary Receipts for the shares of United Company RusAl Plc

Russian Depositary Receipts (state registration number: 5-01-01481-B of 7 December 2010), issued by Sberbank of Russia and representing proprietary rights to ordinary registered certified shares of United Company RusAl Plc., which were assigned International Securities Identification Number (ISIN) JE00B5BCW814 and Classification of Financial Instruments (CFI) Code ESVUFR.

Bovespa Index futures

The Bovespa Index, which is calculated by the Brazil Stock Exchange (BM&FBovespa S.A. – Bolsa de Valores, Mercadorias e Futuros) in compliance with its methodology (www.bmfbovespa.com).

FTSE/JSE Top40 Index futures

The FTSE/JSE Top40 Index, which is calculated by the Johannesburg Stock Exchange (JSE) in compliance with its methodology (www.jse.co.za/Home.aspx).

Hang Seng Index futures

The Hang Seng Index, which is calculated by the Hong Kong Exchange (Hong Kong Exchanges and Clearing) in compliance with its methodology (www.hkex.com.hk/eng/index.htm).

Sensex Index Futures

The Sensex Index, which is calculated by the Bombay Stock Exchange (BSE) in compliance with its methodology (www.bseindia.com).

Futures on the basket of 10-year federal loan bonds (OFZ)

Federal loan bonds that meet the following criteria: the bonds are issued by the Russian Ministry of Finance; the bond issue size should be no less than 5.0 billion roubles; the bond issue should have the following parameters: constant coupon bonds without principal amortisation; the bond issue should be placed no later than 2 weeks before the first trading day; the period from the contract execution to the redemption date inclusive should be no less than 7 years and no more than 10 years; a decision on a bond issue does not stipulate the right of early repurchase or redemption by the issuer.

June

December

Underlying reference

Method of contract execution Deliverable contracts, the contract size is 100 receipts (deliverable by concluding a deal in the ‘Standard’ sector on the last day of the contract’s trading)

Settlement contracts

Deliverable contracts

Source: Moscow Exchange.

64

2012

Financial Market Review, Issue No. 74, a regular publication of the Research and Information Department since 1996. The Financial Sector Analysis Division (Ye.N. Chekmareva — Head of the Division, O.V. Bychkova, D.Ye. Grigoryev, K.N. Guseva, A.S. Dorkina, A.V. Yegorov, Yu.A. Zhuravleva, L.M. Zinovyeva, N.V. Kiryukhina, Ye.N. Krivonenkova, Ye.G. Melnikova, I.L. Merkuryev, O.V. Radeva). Section 3.5 has been compiled using material provided by the General Economic Department (N.Yu. Ivanova – Director of the Department, Z.I. Merkulova – Head of the Division, N.K. Bogacheva, G.N. Tretyakova). Edited, laid out and printed by the Department’s Technical Support and Publication Section (Division) (Yu.V. Glavinsky – Head of the Section). © THE CENTRAL BANK OF THE RUSSIAN FEDERATION, 2013

Research and Information Department