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Rouble Settlements: Practical Insights for Banking Operations

Gain practical insights on Rouble settlements, liquidity management, and RTGS specifics for international banks in Russia. Understand key issues and forecasted trends.

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Rouble Settlements: Practical Insights for Banking Operations

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  1. Rouble settlements for international banks Practical Aspects Julia Sergeeva Payments and Cash Management ING BANK (EURASIA) ZAO April 2011

  2. Agenda • Overview • RUB Settlements issues • Liquidity Management Issues • RTGS : current status and specifics • Summary

  3. Overview Market participants • International brokers • Off-shore market • FX spot, FX swaps, XCY swaps, IRS, OIS • Counterparts • Top 30 Russian banks • Subsidiaries of foreign banks in Russia Rouble funding Top Russian banks and foreign subsidiaries (overnight 3-3.5%, MM up to 3 months) Foreign banks – limited direct access to local funding Current issue - Lack of local ISDA Trading and Settlements volumes substantially increased • Forecasted increase in volumes in 2011 vs. 2010 Turnover of ING Moscow vs foreign banks around 20 milliards RUB per day Mostly traded instrument FX spot, FX swaps, RUB bonds, REPO, derivatives Volumes are based on ING Commercial Banking activity on Russian market

  4. RUB Settlements Issues • Special format of RUB payments, including obligatory special (VO) codes for currency control purposes • Manual intervention in RUB payment processing • Main principles • Payments with early CBR shift • Extended cut-off times for same day value settlement • Intraday overdraft facility • Understanding of Currency control rules • Account opening procedure is rather tough Collecting of documents set (from 3 months up to 1 year) Accounts opening (1-2 days) Tax registration (up to 1 week) Russian Tax Authorities Clearing provider Correspondent bank Payment processing for Moscow region

  5. Liquidity Management Issues • Majority of commercial and interbank payments are processed with the 4th and the 5th batches when interbank currency market is already inactive • Wide variety of bank internal crediting procedures – from crediting all 5 batches with the same value to crediting all 5 batches with next business day value • CBR does not pay interest on an overnight credit balance on the correspondent account of a local bank • CBR offers secured overnight loans, backed with certain government debt securities, however, the interest rate (re-financing rate) is relatively high at the moment: 8.00% (as of February 28,2011) • Generally no distinction between high/low value & urgent/non-urgent payments • Cover payments are not possible for RUB as it contradicts Russian legislation • No back value allowed, while the fine for non-delivery of RUB funds (for interbank payments) is usually as high as a double re-financing rate • Necessary limits and documentation shall be in place (either Master Agreement or ISDA) to start interbank FX trading • Overdraft facility for non-resident banks • available upon signing of the special agreement; • limits imposed onto local banks offering overdrafts via risk management requirements of CBR. • No true cash pooling and sweeping facilities

  6. RTGS : current status and specifics • Current status • The main liquidity is still concentrated in the Batch-Based System (BBS) • Mostly used for early payments to MICEX Settlement House • Since August 2010 all domestic Banks are joined to RTGS system • Currently used by about 3045 credit organizations (including its branches) • Volume represents approximately 25% of the total RUB payment settlements • No interest in using RTGS System • Specifics of RTGS in Russia • Meant specifically for low-volume high-value payments • Not duly harmonized with the currently used CBR BBS • Labour-intensive and time-consuming payment processing • Non-compatibility with international SWIFT standards • High dependency on the possibility and willingness of the local recipient bank to process the payment via RTGS system • No clear definition of control mechanism for liquidity management • Not sufficiently quick and reliable at the current stage

  7. Summary • RTGS Functional requirements • Online settlement over principal RUB NOSTRO • Instant settlement netting • SWIFT compatible • Liquidity management

  8. ING BANK (EURASIA) ZAO • 36 Krasnoproletarskaya Street • Moscow, 127473, Russia • T.+7 495 755 5400 • F.+7 495 755 5499 • www.ing.ru

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