The First Half of 2013

THE BANK OF RUSSIA THE RESEARCH AND INFORMATION DEPARTMENT

FINANCIAL MARKET REVIEW

The First Half of 2013 • No. 75

Summary..................................................................................................... 1

1. The foreign exchange market .................................................................... 3

2. The money market .................................................................................... 6

3. The capital market ..................................................................................12

3.1. The OFZ market .......................................................................................................12

3.2. The corporate bond market .......................................................................................15

3.3 The equity market ......................................................................................................19

3.4. Loan and deposit markets ..........................................................................................24

3.5. Credit institutions and non-bank financial organisations on the capital market .................29

4. The derivatives market .............................................................................33

Conclusion .................................................................................................38

Addendum..................................................................................................40

MOSCOW

2013

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 Research and Information Department.

Source information is based on Bank of Russia data and that of other financial market regulators, as well as market statistics and information provided by specialised news agencies. This Review uses data available as of July 30, 2013.

AbbreviationsADR – American Depositary ReceiptsAHML – Agency for Housing Mortgage LendingCDS – credit default swapCIS – Commonwealth of Independent States CJSC – closed joint-stock companyDIA – Deposit Insurance AgencyECB – European Central BankFed – US Federal Reserve SystemFFMS – Federal Financial Markets ServiceFX market – foreign exchange marketGDP – Gross Domestic ProductGDR – global depositary receiptsGKO – short-term government bondsGSO – government savings bondsIMF – International Monetary FundIPO – initial public offeringMIACR – Moscow Interbank Actual Credit RateMIACR-B – Moscow Interbank Actual Credit Rate-B-GradeMIACR-IG – Moscow Interbank Actual Credit Rate-Investment GradeMICEX – Moscow Interbank Currency ExchangeMICEX SE – MICEX Stock Exchange Moscow Exchange – since June 29, 2012, the name of the exchange established as a result of the MICEX and RTS merger on December 19, 2011NBCI – non-bank credit institutionOBR – Bank of Russia bondsOFZ – federal loan bondsOFZ-AD – debt amortisation federal loan bondsOFZ-PD – constant coupon income federal loan bondsOGVZ – government foreign currency bondsOJSC – open joint-stock companyOTC market - over-the-counter market OVGVZ – domestic government foreign currency bondsOVOZ – domestic government bonds placed on the international capital marketPIF – unit investment fundQE – quantitative easing RTS – Russian Trading SystemSME – small and medium-sized enterprisesSPCEX – Saint Petersburg Currency ExchangeSPO – secondary public offeringVEB – Vnesheconombankbp – basis points (0.01 pp)pp – percentage points

The First Half of 2013 • No. 75 1

In the first half of 2013, the Russian financial market developed amid some deterioration of foreign trade terms and a slower growth of the real sector of the Russian economy. As before, the domestic financial market was also affected by developments on foreign financial markets, changes in the sentiments of global investors and their attitude to risk (see Box “Analysis of the Financial Market Composite Sentiment Index” on page 38). Major external shocks for the Russian financial market during the period under review were related to price fluctuations on global commodity markets, primarily the oil market, and also problems in the financial sector of some eurozone countries, as well as investor expectations that the US Federal Reserve would curtail its accommodative monetary policy.

According to estimates, the rate of growth of the financial market’s value slightly fell behind its nominal GDP growth rate in the first half of 2013 (see Table 1 in the Addendum). As a result, the financial market capitalisation to GDP ratio was almost unchanged and equalled 107% as of the end of June 2013 compared to 108% as of the end of December 2012 (Chart 1). Trends continued to develop towards the changing contribution by the main segments of the financial market to the dynamics of the total financial market volume. Equity market capitalisation to GDP contracted by another 4 pp to 36%, the volume of outstanding debt securities increased by 2 pp to 26% and bank loans of non-financial organisations and households grew by 1 pp to 46%. The expansion of the volume of outstanding debt securities was attributable to the build-up of the portfolio of corporate bonds circulating on the domestic and foreign markets while the volume

of outstanding bank loans increased largely due to the growth of retail loans.

The financial market’s price indicators demonstrated mixed dynamics in the first half of 2013. In January and early February 2013, the growing volumes of Russian banks’ liquidity kept money market rates below the level registered in 2012 Q4. The rouble’s appreciation against the US dollar amid higher world oil prices intensified investors’ interest in rouble-denominated securities and contributed to a rise in their prices. Meanwhile, yields on major types of rouble-denominated bonds were seen to decline during this period (Chart 2). From mid-February 2013, the situation in the main segments of the Russian financial market started to deteriorate under the impact of falling world oil prices, which continued their slide until mid-April, and also the banking crisis in Cyprus in March. The appreciation of the rouble came to a halt and bank increased demand for rouble liquid funds prompted money market rates to rise to the level registered in late 2012. The prices of debt securities stopped to grow while the prices of equities were seen to decline steadily. In May-June 2013, despite world oil price stabilisation, the situation on the Russian financial market deteriorated under the impact of an outflow of global investors’ money from risky assets due to fears that the Fed could scale down its quantitative easing programme. Price falls affected all segments of the Russian financial market and the national currency depreciated considerably.

The situation on the domestic foreign exchange market in the first half of 2013 continued to influence developments on the money market and capital market. Depending on prevailing trends, the Bank of Russia

Summary

Financial market revies

2 The First Half of 2013 • No. 75

acted as both the buyer and seller of foreign currency on the domestic foreign exchange market during the period under review to mitigate exchange rate fluctuations. In January-May, the volume of foreign exchange interventions was inconsiderable but in June the Bank of Russia expanded the sale of foreign currency significantly amid a sharp depreciation of the rouble. The regulator did not change the width of the floating operational band of permissible fluctuations in the rouble value of the dual currency basket after making a minimum upward shift of the band’s limits in late June. The rouble’s exchange rate decreased against the world’s major currencies in the first half of 2013 as compared with the end of 2012.

The money market remained relatively stable in the period under review. Interest rates on rouble interbank loans adequately responded to the dynamics of banking sector liquidity volumes, the terms of Bank of Russia operations on the money market and the situation in the adjacent segments of the financial market. Money market rates were slightly higher in June 2013 than in December 2012 while their volatility decreased in the first half of 2013 as compared with the previous six-month period.

Russian banks continued to expand lending to non-financial organisations and households in the first half of 2013, although the growth rates of both their corporate and retail loan portfolios registered some slowdown year on year. Retail lending continued to grow considerably faster than corporate lending, despite measures taken by the Bank of Russia to tighten consumer loan regulation. The price and non-price terms and conditions of lending did not register any considerable changes.

The main segments of the domestic debt securities market continued their development in the period under review. The value of corporate bonds placed on the domestic market in the first half of 2013 exceeded the corresponding indicators in the first and second halves of 2012. The Finance Ministry failed to float the entire volume of government bonds planned for the first half of 2013 due to low demand at some OFZ auctions. Trade turnovers on the secondary market of government and corporate bonds increased, with the value of securities sold by non-residents in secondary exchange transactions exceeding the value of their bond

purchases. The prices of government bonds showed greater volatility in comparison with corporate bonds because the non-resident share on the OFZ bond market was considerably higher than that on the domestic corporate bond market in the period under review. As a result, OFZ yields on the secondary market had increased by the end of June 2013 as compared with the end of December 2012, whereas corporate bond yields decreased, narrowing the yield spread between these categories of bonds.

The situation on the equity market was the least favourable as compared with the other segments of the Russian securities market. In the first half of 2013, the Russian stock indices were largely seen to fall and by the end of June they returned to their minimum levels registered since early 2012. On the primary market, Russian issuers delayed the placement of the bulk of their share issues, which they had announced. On the secondary market, the total turnover of exchange trades in equities declined while foreign investors continued to withdraw their funds from this market segment.

The development of the financial market infrastructure in the first half of 2013 was marked by the start of settlements for non-resident exchange and over-the-counter transactions with government bonds on the domestic market via leading foreign clearing companies. The range of financial instruments was expanded and amendments were made to the legal framework regulating specific segments of the financial market. In the second half of 2013, measures will be taken to implement the decision on establishing a mega-regulator of the national financial sector through a merger of the Federal Financial Markets Service into the Bank of Russia.

Thus, the Russian financial market remains stable in 2013 and continues to perform its function of redistributing financial resources in the national economy. In the second half of 2013, the Russian financial market will develop amid a slow growth of the Russian and world economies, persistent debt problems in some developed countries and the unstable situation on foreign financial and commodity markets. At the same time, there are no objective reasons for a sharp deterioration of the situation on external and domestic markets until the end of 2013.


As before, the domestic foreign exchange market in the first half of 2013 was largely influenced by global prices for Russia’s major export commodities (primarily oil prices), capital flows, as well as by the Bank of Russia exchange rate policy. In addition, the economic expectations of market participants and their appetite for risky assets influenced exchange rate dynamics considerably.

In January-March, despite a prevailing downward trend in world oil prices and a persistent net private capital outflow, the domestic foreign exchange market continued to demonstrate a relative balance between foreign currency demand and supply. Capital outflow from Russia in the first half of 2013 was prompted by the existing level of internal and external risks, which determined the low investment attractiveness of Russian financial assets for both foreign and Russian investors. From April, greater price uncertainty on the world oil market led to higher volatility on the domestic foreign exchange market. Overall, the national currency remained highly sensitive to developments on global commodity markets. In June, the rouble exchange rate dynamics were mainly affected by investors’ reduced risk appetite prompted by the expectations that the Fed would curtail its accommodative monetary policy. The rouble came under further pressure after the Finance Ministry announced changes to the mechanism of money transfers to the Reserve Fund and its plans to make foreign currency purchases on the domestic foreign exchange market from August 2013, a move, which, as analysts believe, could contribute to the rouble’s depreciation by the end of the year.

1. The foreign exchange market

In the period under review, 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, 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 dual currency basket (0.45 euros and 0.55 US dollars) as an operational benchmark of its exchange rate policy. The range of its permissible 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 Bank of Russia to improve its exchange rate policy and create conditions for switching to the rouble’s free floating by 2015 were also aimed at neutralising market participants’ steady expectations regarding further exchange rate dynamics.

The Bank of Russia’s interventions helped maintain a relative balance between foreign currency supply and demand on the domestic foreign exchange market and continued to exert a significant influence on international reserves in the period under review. In January-May 2013, the Bank of Russia considerably reduced its presence on the domestic foreign exchange market carrying out sometimes only target interventions that caused no shifts in the borders of the floating operational band. In June, as the rouble fell sharply against the world’s major currencies, the Bank of Russia’s foreign currency sale volumes grew considerably and surpassed the planned interventions triggering a 5-kopeck upward shift in the borders of the operational band to 31.70 and 38.70 roubles for the band’s lower and upper limits respectively.

In January-March, the rouble value of the dual currency basket was largely determined by fundamental economic factors and ranged within a narrow horizontal band. A subsequent fall in world oil prices considerably increased the basket volatility, which was followed by a sharp growth in the rouble value of the dual currency basket in June (Chart 1.1).

Fluctuations in the rouble value of the dual currency basket reflected changes in the exchange rates of its constituent currencies – the US dollar and the euro – against the rouble (Chart 1.2). The dollar/rouble exchange rate was characterised by a marked upward trend from February while the euro/rouble exchange rate ranged within a wide horizontal band in January-May, which was followed by its sharp appreciation in June. The official US dollar/rouble rate appreciated by 7.7% in the first half of 2013 to 32.7090 as of July 1,



demand for ‘currency swap’ transactions with both the US dollar and the euro made a major contribution to the growth of turnovers in the exchange segment of the domestic foreign exchange market. 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.

Thus, worldwide market changes in the first half of 2013 had their effect on the dynamics of the exchange rate of the national currency. As part of its foreign exchange policy, the Bank of Russia held interventions on the domestic market to mitigate excessive fluctuations of the rouble and keep its volatility within acceptable limits. The activity of domestic interbank FX market operators was slightly higher than in the previous year.

* * *The situation on the domestic foreign exchange

market until the end of 2013 will be determined by the same basic factors, namely, global prices for

2013. The euro/rouble rate also appreciated rising by 6.2% in the period under review to 42.7180 as of July 1, 2013.

The real exchange rate of the rouble against the currencies of Russia’s major trading partners showed more moderate changes in January-June 2013 than in the same period of 2012 (Chart 1.3).

In the first half of 2013, the rouble depreciated considerably both in nominal and real terms. In June 2013 (on December 2012), the real rouble/US dollar rate fell by 3.0% and the real rouble/euro rate depreciated by 2.9%. The real effective exchange rate of the rouble against foreign currencies fell by 1.5%.

The activity of participants on the domestic foreign exchange market rose in the period under review. Analysis of exchange trade turnovers in the major currency pairs in 2013 shows market participants’ higher interest in operations conducted in the exchange segment (Charts 1.4 and Chart 1.5), which retains its significance for the exchange rate policy. The market participants’ enhanced

The foreign exchange market


commodities that are Russia’s major exports, cross-border capital flows and the Bank of Russia exchange rate policy. Uncertainty over world oil price dynamics will contribute to higher volatility of the national currency.

The persistent net private capital outflow from Russia in the second half of 2013 will create additional pressure on the rouble. In this context, even if the world commodity markets improve, the rouble is not expected to strengthen considerably: as part of a coordinated policy pursued by the Bank of Russia and the Finance Ministry, in case the supply of foreign currency on the domestic market exceeds demand, starting from August,

the Finance Ministry will independently purchase foreign currency to replenish sovereign funds.

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 while retaining the possibility of influencing exchange rate dynamics to mitigate excessive rouble fluctuations.


The situation on the Russian money market remained relatively stable in the first half of 2013. The basic factors influencing the money market, namely, the volumes of liquid funds held by market participants, the terms of Bank of Russia operations on the money market and developments in the adjacent segments of the Russian financial market, did not undergo any significant changes as compared with 2012. In this situation, most of the money market indicators were close to the previous year’s level (Table 2.1).

As in previous years, the market witnessed seasonal fluctuations of banking sector liquidity in 2013, which exerted significant influence on money market rates. A large-scale inflow of funds into the banking sector through the budgetary channel in late December 2012 contributed to the growth of the banking sector liquid assets (primarily, the balances of correspondent and deposit accounts with the Bank of Russia, Chart 2.2) and the contraction of bank liabilities to the Bank of

Russia. As a result, money market rates were observed to decline moderately in January-February 2013 as compared with 2012 Q4 (Chart 2.1 and Table 2.1).

In March-June, the renewed outflow of funds from the banking system through the budgetary channel, coupled with the growth of money in circulation, widened the banking sector structural liquidity deficit and increased demand for liquid rouble funds.1 Higher demand for rouble funds could also be prompted by Russian banks’ policy of building up their portfolios of short-term foreign currency instruments, in particular, deposits with foreign banks, amid the nominal depreciation of the rouble against the world’s major currencies (Chart 2.4). In this situation, money market rates rose, returning to the level registered in the last quarter of 2012.

Interest rate changes that were prompted by seasonal fluctuations in liquidity were registered only in the segment of operations with maturities of one day,

1 A more detailed analysis of banking sector liquidity and the factors determining its dynamics is given in Monetary Policy Report No. 1 and No. 2, 2013.

Table 2.1

Money market overnight rouble transactions

Indicator Segment2012 2013

January-December October-December January-February March-June January-JuneAverage interest rate, % p.a.

Interbank loans (MIACR) 5.53 6.13 5.55 6.22 6.01Bond repos (MICEX BORRON index) 5.84 6.28 5.84 6.16 6.06Equity repos (MICEX EQRRON index) 5.57 6.03 5.72 6.07 5.96

Average daily turnover, billions of roubles

Interbank loans (MIACR sample) 173.73 177.96 191.93 216.14 208.42Bond repos (MICEX BORR sample) 114.13 89.02 113.14 97.52 102.46Equity repos (MICEX EQRR sample) 76.73 87.92 77.17 84.72 82.33

Source: The Bank of Russia. the Moscow Exchange.

2. The money market

The money market


2-7 days and 8-30 days. The average MIACR rates on interbank loans for these maturities fell by 39-59 bp in January-February 2013 as compared with 2012 Q4 and in March-June they exceeded the indicators of January-February by 48-68 bp. The segment of operations for the maturities of one month to one year did not witness a steady downward trend in January-February while the rate growth by 6-22 bp in March-June was considerably smaller than in the segment of operations for shorter terms. This change in the term structure of interbank loan rates suggests that market participants perceived a fall in interbank loan rates in early 2013 as a seasonal trend that would have no considerable impact on the market in a long-term perspective.

In the first half of 2013, as was the case in 2012, the market witnessed a contraction of interdealer repo turnovers and a growth of interbank loan turnovers. In January-June 2013, the average daily turnover on the interbank lending market exceeded the 2012 level by 20%, whereas this indicator for the interdealer repo segment fell by 2.3%. As a result, the share of interbank loans in money market turnovers was observed to increase in January-June 2013, as was the case in 2012. While interdealer repo turnovers contracted, Russian banks showed a greater activity in repos with the Bank of Russia and Bank of Russia loans against the collateral of securities from the Lombard List. This reduced their need for borrowings on the interdealer repo market and restricted the volume of collateral available for such transactions. As of the end of June 2013, bank liabilities to the Bank of Russia for repo operations totalled 2.2 trillion roubles and overdue Bank of Russia secured loans stood at 82.2 billion roubles (the portfolio of all debt and equity securities held by Russian banks, including securities outside the Bank of Russia Lombard List, equalled 6.5 trillion roubles as of the end of June). Higher borrowings from the Bank of Russia changed the structure of Russian banking sector short-term liabilities

(see Box “Analysis of the Russian Banks’ Short-Term Funding Index”).

In the first half of 2013, government bonds were partially replaced with corporate bonds as collateral for interdealer repo market operations (Chart 2.6). The share of repos secured by OFZs in the total volume of interdealer repos on the Moscow Exchange contracted from 40% in the second half of 2012 to 33% in January-June 2013. The share of repos secured by corporate bonds rose from 33% to 42% over the same period. One of the factors explaining this change in the structure of interdealer repo market operations is growing Russian banks’ liabilities to the Bank of Russia on repos and Lombard loans. As OFZs are issued at the smallest discounts to par, precisely these securities are primarily used in operations with the Bank of Russia. This presumption can be confirmed by the fact that in the first half of 2013 the largest share of interdealer repos with OFZs (37%) was registered in January, when



Analysis of the Russian Banks’ Short-Term Funding Index

The continuous and efficient operation of the mo ney market and the cashless settlement system is largely deter-mined by the structure of bank short-term liabilities and in-terest rates. To assess the cost of bank short-term liabilities, the Bank of Russia has developed the Short-Term Funding Index (SFI) based on the adapted ECB method of calculat-ing the composite cost of deposit and bond funding.1 Anal-ysis of the SFI dynamics evidences considerable shifts in the structure of bank short-term funding and, consequently, funding costs.

In 2011-2013, the rate of growth in bank short-term liabilities2 was comparable with that of Russian bank-ing sector total liabilities. As of the beginning of June 2013, the value of funds raised by banks for a term of up to 30 days, including ‘demand’ deposits, exceeded 10.2 trillion roubles (19.4% of total liabilities) as compared with 6.6 trillion roubles (19.6% of total liabilities) as of the begin-ning of January 2011.

The structure of Russian banking sector short-term li-abilities changed considerably in the period under review. The share of funds, which banks raised from the Bank of Russia and the Finance Ministry for a term of up to 30 days, was seen to expand gradually from October 2011. In particular, from early January 2011 to early July 2013, the share of bank borrowings from the Bank of Russia3 in the volume of banking sector short-term liabilities grew from 0.1% to 19.0% (in absolute terms, this indicator in-creased from 4 billion roubles to 1,941 billion roubles). Simultaneously, the proportions of other, relatively cheap, funding sources (corporate current accounts, corporate and household short-term deposits, promissory notes, etc.) were observed to decrease. From early January 2011 to early July 2013, the share of corporate current ac-counts fell from 68.5% to 55.6% (in absolute terms, this indicator grew from 4,529 billion roubles to 5,691 billion roubles). The share of interbank loans raised by banks on the domestic market with maturities from one day to 30 days decreased from 8.5% to 7.5% (in absolute terms, this indicator increased from 560 billion roubles to 765 billion roubles).

The build-up of borrowing from the Bank of Russia and the Finance Ministry, which is more expensive than most other alternative funding sources, and also the grow-ing cost of other resources (corporate and household de-posits, promissory notes and interbank loans) changed the SFI position in the range set by the ‘on-demand’ rate and the rate for a term of up to 30 days. This change, coupled with higher interest rates on major types of short-term lia-bilities, caused a considerable increase in the cost of short-term funding. The average rate on short-term bank liabili-ties, weighted by the value of funds raised as of the end of the month, rose from 1.1% p.a. to 2.8% p.a. in the period between January 2011 and June 2013.

Decomposition of changes in the average cost of short-term bank liabilities helped separate the effect ex-erted by the overall growth of interest rates (the interest

1 Assessing the financing conditions of the euro area private sector during the sovereign debt crisis // ECB Monthly Bulletin, August 2012.2 Funds attracted for a term of up to 30 days and for an ‘on-demand’ term.3 Including other funds raised from the Bank of Russia.

The money market


banks were seen to reduce borrowings from the Bank of Russia.

Money market rate volatility slightly decreased in the first half of 2013 (Chart 2.3). The average absolute change in the MIACR on interbank overnight rouble loans narrowed from 21 bp in the second half of 2012 to 14 bp in the first half of 2013. This indicator for interdealer bond repo rates decreased from 10 bp in July-December 2012 to 7 bp in January-June 2013. The intra-month cycle of rates continued in 2013. In some months, a temporary spike in rates was observed during periods when taxes were being paid, as well as during other periods when regular payments were being made by banks and their customers. However, this increase was insignificant (the average MIACR on interbank overnight rouble loans in the last ten-day period of the

rate effect) and the change in the funding structure by source (the weight effect). Analysis was made using the Laspeyres formula based on an algebraic transformation of growths complying with the properties of exhaustiveness, dimensionality of rates and values, and also strong monotonicity of their changes.4

The Laspeyres-type decomposition in 2 terms:

I – average rate on short-term bank liabilities weighted by the value of funds raised as of the end of the month;i (k) – interest rate on funding source k;w (k) – weight of k values in the total value of short-term funding operations;t – time index;∆ – difference operator.The Laspeyres-type decomposition of SFI changes confirms the conclusion that structural factors make a substantial

contribution to the growth of the cost of short-term funding. Until mid-2012, the growth of rates and the increase in the share of more expensive liabilities in the volume of short-term funding exerted a comparable influence on the SFI, whereas afterwards the effect of the change in the liability structure started to exercise a decisive influence on the growth of the funding cost.

4 Huerga J., Steklacova L. An Application of Index Numbers Theory to Interest Rates // ECB WP Series, No. 939, September 2008.

effect weight

1,

effectrateinterest

11,1, )(*)()(*)( ∑∑ −−−− ∆+∆=∆k

tttk

ttttt kikwkwkiI , where

month exceeded the average monthly level of this rate in January-June 2013 by no more than 0.4 pp).

Amid relatively low money market rate volatility, the bid/ask spreads on the money market slightly narrowed in the first half of 2013. Specifically, the average daily spread between the interbank offered/bid (MIBOR/MIBID) rates equalled 65 bp for overnight interbank rouble loans and 93 bp for rouble loans with maturities from 181 days to one year as compared with 71 bp and 107 bp respectively in the second half of 2012. The narrower spreads of the rates suggested that banks operating on the market did not expect sharp fluctuations in interbank loan rates.

The quality of the portfolio of interbank loans placed in 2013 remained relatively high. With regard to the total volume of interbank loans, which Russian banks raised from resident banks with maturities of less than one year, the average share of loans attracted by banks with investment-grade ratings totalled 61% in January-May 2013 (the same indicator in the second half of 2012) (Chart 2.7).

Credit risk remained moderate on the interbank loan market in 2013. The average share of overdue loans in the total value of interbank loans extended to Russian banks was unchanged from July-December 2012 and stood at 0.31% in January-June 2013. This indicator for loans extended to non-resident banks increased from 0.02% to 0.05% over the same period.

In this situation, the MIACR-B (the rate on loans to banks with speculative-grade credit ratings) generally 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 0.3 pp during most of 2013 (Chart 2.8), which was further evidence that market participants



continued to operate in the conditions of mutual trust and credit risk remained moderate on the money market.

Non-resident banks remained the main counterparties of Russian banks in the segment of interbank foreign currency loans. As of the end of June 2013, Russian banks placed 83% of their foreign currency loans with non-resident banks and raised 76% of these loans from non-residents. In January-May 2013, the average rate on interbank overnight foreign currency loans placed by Russian banks equalled 0.18% p.a. for US dollar loans and 0.03% p.a. for euro loans (the overnight US dollar LIBOR was 0.15% p.a. and the overnight euro LIBOR was 0.02% p.a. over this period) (Chart 2.5). The volatility of interest rates on interbank foreign currency loans placed by Russian banks remained moderate. During the entire first half of 2013, Russian banks were net creditors of foreign credit institutions. Interbank loans placed with foreign banks exceeded interbank loans raised from non-resident banks gradually to reach a local maximum of 1.13

trillion roubles at the end of June 2013 (Chart 2.4). Russian banks were seen to build up the volumes of loan placements with non-resident banks amid the rouble’s depreciation against the world’s major currencies observed during most of the first half of 2013.

A high concentration of participants continued to dominate the domestic money market (Chart 2.9). As of the end of June 2013, the top 30 banks accounted for 68% of total interbank loans placed by Russian banks on the domestic market as compared with 67% at the beginning of 2013. Russia’s 30 largest banks accounted for 74% of interbank loans raised on the domestic market (77% as of early January 2013). The market concentration by region was also considerable. As before, Moscow-based banks dominated the interbank loan market, they raised and placed 94% of total loans as of July 1, 2013 as compared with 92% and 93% respectively as of early 2013. The market’s high concentration made it vulnerable to a possible deterioration in the financial standing of its major market participants. However, the group of these banks was dominated by reliable banking institutions with high credit ratings (mostly banks with state and foreign stakes), due to which the risks of a considerable deterioration on the interbank loan market were low.

The currency and term structure of operations between residents on the Russian money market registered no significant changes. Short-term rouble operations continued to dominate the market. In January-June 2013, overnight transactions accounted for 91% of Russian banks’ interbank rouble loans (MIACR sample) and over 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 of the previous year. The domestic money market registered, as before, mostly rouble operations.

The money market


* * *Thus, the money market was characterised by

a moderate growth of turnovers in the first half of 2013, which was attributable to the larger volumes of interbank loan market operations. The maturity, currency and regional structure of the Russian money market, which had been developed in previous years,

remained unchanged. The interest rate dynamics were characterised by the same seasonal trends that were registered in previous years (a moderate fall in rates during the first months of a calendar year and their subsequent rise). Money market rate volatility remained low throughout the entire period under review.


Table 3.1.1

Government borrowings via OFZ issues in the first half of 2013 (billions of roubles)

Indicator Plan Outcome

Nominal value of auction-based floats 605.6 360.6

Redemptions 298.3 298.3

Number of redeemed/partially redeemed issues 4 4

Coupon payments, value 118.2 118.3

Coupon payments, number 35 35Source: The Finance Ministry.

3. The capital market

in the first half of 2013 sold 69.0% of the total volume of bonds offered for placement on the primary market (4.7%-100.0% of the declared placement volume on some bond issues).

In the period under review, investors were offered government bonds with maturities ranging from 3 to 15 years. The average maturity of OFZs placed at auctions equalled 8.5 years as compared with 7.3 years and 8.7 years in the first and second halves of 2012 respectively). The volume of supply on some OFZ issues ranged from 4.2 billion roubles to 35.0 billion roubles (from 10.0 billion roubles to 45.0 billion roubles in 2012). The OFZ average value grew by 1.6 billion roubles in the first half of 2013 to 95.6 billion roubles.

In March-May, the Finance Ministry held several additional OFZ placements without auctions worth a total of 1.0 billion roubles.

The nominal value of outstanding government securities was observed to decrease in January-March, as the redemption value exceeded the value of placements, and to increase in April-June in the absence

3.1. The OFZ market Developments on the government securities

market in the first half of 2013 were influenced by investors’ changing interest in making investments in rouble-denominated assets, by the policy of the Finance Ministry, which responded promptly to the change in their OFZ demand, and also by developments on the world financial market and the behaviour of foreign participants who played an increasingly important role on the domestic government debt market.

The primary market In compliance with the Russian Government’s

internal borrowing programme for 2013, approved by the Federal Law “On the Federal Budget in 2013 and for the Planning Period of 2014 and 2015”, the Finance Ministry continued to place OFZs on the domestic market in the first half of 2013 (Table 3.1.1). Investor demand for government securities varied considerably in the period under review. In January-April, auctions were held every week (24 planned auctions took place), with two thirds of them being oversubscribed (demand exceeded supply) (see Table 2 in the Addendum). In May-June, the issuer reduced its activity for OFZ placement due to the deterioration of the market situation: two out of six planned auctions were invalidated (in the absence of competitive bids filed within the established interval of yields) and one auction was cancelled following analysis of the current market situation.

Depending on the budget’s current requirements and the prevailing market situation, the issuer placed government bonds with a premium or at a discount to their yields on the secondary market (Addendum, Table 2 and Chart 3.1.3). The auctions held by the issuer

The money market


Table 3.1.2

Main indicators of the OFZ market

Indicator The second half of 2012 The first half of 2013 Growth in the first half of

2013, % The OFZ market portfolio at nominal value, as of the end of the period, billions of roubles 3,196.7 3,260.0 2.0The OFZ portfolio duration as of the end of the period, years (days) 4.3 (1,584) 4.6 (1,664) 5.0The average OFZ portfolio duration, years (days) 3.9 (1,438) 4.6 (1,686) 17.2Total OFZ turnover at actual prices, billions of roubles 2,961.5 3,486.4 17.7

Including: in the main trading mode 474.8 398.7 –16.0in the negotiated deals mode 2,486,7 3,087.7 24.2

Average daily OFZ total turnover at actual prices, billions of roubles 23.0 29.1 26.6Including:in the main trading mode 3.7 3.3 –9.7in the negotiated deals mode 19.3 25.7 33.5

Average OFZ turnover velocity at actual prices, % 192.9 210.5 9.1Including:in the main trading mode 30.9 24.1 –22.1in the negotiated deals mode 162.0 186.5 15.1

OFZ yield* as of the end of the period, % p.a. 6.71 7.58 87 bp.OFZ average yield*, % p.a. 7.44 6.88 –56 bp

* Gross yield to redemption of the most liquid OFZ issues (RGBY).

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

of redemptions (Chart 3.1.1). The OFZ portfolio grew by 63.3 billion roubles in the first half of 2013 (Table 3.1.2). In compliance with the payment schedule, the issuer redeemed three OFZ-PD issues (25065, 25072 and 25078) and 1/10th of the nominal value of the OFZ-AD 46019 issue, and also made coupon payments on government bonds (Table 3.1.1 and Chart 3.1.2). The OFZ market portfolio duration increased by 80 days in the first half of 2013 (Table 3.1.1 and Chart 3.1.1).

The secondary marketThe activity of the participants of the secondary

domestic government bond market increased as a whole in the first half of 2013 compared to the second half of 2012. The average daily volume of exchange

transactions with OFZs expanded (Table 3.1.2 and Chart 3.1.4). As secondary trade turnover grew faster than the government bond portfolio, the OFZ turnover velocity expanded in the period under review.

In the first half of 2013, the structure of OFZ secondary market in the main and negotiated deals trading modes continued to vary by maturity (Chart 3.1.5). The largest share of operations in the period under review was registered with five-year-plus OFZs, which accounted for 65% of the total volume of transactions (as compared with 53% in the second half of 2012). At the same time, the share of transactions with ten-year-plus bonds rose two-fold (from 14% to 28%).

The structure of OFZ secondary trade by Russian and foreign participants was relatively stable in the first half of 2013 (Chart 3.1.4). The share of non-resident operations in the OFZ total secondary trade turnover ranged from 20% to 30% in the period under review (from 20% to 27% in the second half of 2012). However, the direction of these operations changed: in the second half of 2012, an inflow of non-resident funds worth a total of 175.1 billion roubles was registered amid expectations that foreign investors would be granted a direct access to the OFZ market, whereas in the first half of 2013 the outflow of funds from the OFZ secondary market reached 47.2 billion roubles (Chart 3.1.6). The negative balance of foreign participants’ operations in the period under review could be prompted by their profit-taking (January) after a lengthy period of growth in government bond prices, the aggravation of the situation in the eurozone (March), the deterioration



of the world financial market due to fears that the Fed would scale down its third round of quantitative easing (QE3), and also the rouble’s depreciating (the end of May–June).

In January-February, the yield of the most liquid OFZs (RGBY index2) fluctuated within a horizontal band (6.49% p.a.–6.80% p.a.) while the average maturity of OFZs included in the index portfolio changed inconsiderably (Chart 3.1.3). The OFZ yield increased in March following a growth in money market rates, after which it was largely observed to decline until the end of April. In May-June, the government bond yield grew considerably (from 6.39% p.a. as of May 3, 2013 to 8.06% p.a. as of June 24, 2013) due to an intensive outflow of non-resident money from the OFZ market and the rouble’s depreciation. The OFZ average yield decreased in the first half of 2013 as compared with the second half of 2012. At the end of June 2013, the OFZ

2 The Russian Government Bond Effective Yield to Maturity is calcu-lated by the Moscow Exchange using the average gross redemption yield method.

yield was higher than at the end of 2012 (Table 3.1.2). The range of RGBY index fluctuations increased by 19 bp to 167 bp in the first half of 2013.

Analysis of changes in the term structure of OFZ zero-coupon yield in the first half of 2013 used the dates of local yield extremes. The yield curve transformed noticeably in the maturity segment of up to four years and retained its upward slope in the longer-term segment. The yield curve slope was observed to increase in the period under review due to a faster growth in the yield of long-term instruments (Chart 3.1.7).

Thus, the first half of 2013 registered a higher volume of the government bond market portfolio and its duration and the growth of OFZ secondary trade turnover and the turnover velocity. To improve the structure of its liabilities, the issuer placed large volumes of medium- and long-term OFZs, offering investors an acceptable yield level at auctions and promptly responding to

The capital market


the end of the first half of 2013, the total value of bank loans extended to non-financial organisations stood at 32.3% of Russia’s GDP, whereas the value of the portfolio of corporate bonds circulating on the domestic and external markets was 15.8% of GDP.

In January-June 2013, the domestic corporate bond market registered a high issuance activity of companies from various sectors of the economy (Chart 3.2.1). Low corporate bond yields observed on the secondary market prompted a large number of issuers to enter the primary market. Investor increased interest in new corporate bond issues allowed individual issuers to cut the first coupon rate benchmark initially declared on their bonds while some of them managed to place several bond issues simultaneously. The value of corporate bond placements on the Moscow Exchange expanded in January-June 2013 as compared with the second half of 2012 (Table 3.2.1). On the OTC market, six corporate bond issues with a total value of 6.3 billion roubles were placed (see Table 3 in the Addendum).

changes in the market situation. An active inflow of non-resident speculative capital observed in 2012 amid the expectations that foreign investors would be granted a direct access to trades on the domestic government debt market, including a possibility of settlements via the largest international settlement systems Euroclear and Clearstream3, increased the volatility of OFZ market price and volume indicators in the first half of 2013.

* * *In 2013, the Finance Ministry plans to raise

1,200 billion roubles on the domestic market and simultaneously redeem OFZs worth over 700 billion roubles (net borrowings will total about 500 billion roubles). Provided that the volume of placements planned for the first half of 2013 was not realised in full, the second half of the year will be quite tense for the issuer. At the same time, the issuer still faces the task of setting borrowing costs at a level that does not increase the budget burden, and also a strategic goal of increasing the duration of the OFZ portfolio.

3.2. The corporate bond market In the first half of 2013, Russian investors’ strong

demand for the corporate bonds of mostly reliable companies contributed to the growth of the domestic bond market’s price and volume parameters. The share of non-resident operations in the total turnover of corporate bond secondary trade was moderate and, therefore, the deterioration of global investors’ sentiments did not have a strong negative impact on corporate bond prices.

The primary marketIn the first half of 2013, the corporate bond

market remained an important source of borrowings for reliable companies in the real sector, credit institutions and financial companies. Loans obtained through the issuance of corporate bonds supplemented the loan market but their volume was considerably smaller. At

3 From February 20, 2013, Euroclear launched settlements for OTC OFZ transactions. From March 1, 2013, Euroclear and Clearstream started settlements for exchange transactions with government bonds.

Table 3.2.1

Characteristics of corporate bond primary placements on the Moscow Exchange

IndicatorThe first half of 2012

The second half of 2012

The first half of 2013

Nominal value of placements, billions of roubles 481.0 737.4 784.0

Number of new issues 101 154 151

First coupon average rate, % p.a. 9.8 9.2 9.6

Average maturity announced, years 5.6 7.4 6.9

Issue average value, billions of roubles 4.8 4.9 5.2Source: The Moscow Exchange, Cbonds.ru, calculations made by the Bank of Russia Research and Information Department.



was explained notably by their attractive auction yields (Table 3.2.2), but also by the possibility to use most of them as collateral in Bank of Russia refinancing operations. The demand for investment-grade corporate bonds (with the ratings of at least Baa3 /BBB-) was also boosted by infrastructural changes4, which were aimed at tightening risk assessments for bank investments in speculative-grade bonds (Table 3.2.3).

The share of corporate bonds floated by issuers without credit ratings in the structure of primary placements in the first half of 2013 was 24.5%. Third-tier issuers were seen to increase the attractiveness of their new bond issues by offering premiums to the yields of similar issues circulating on the secondary market (Table 3.2.2). At the same time, the number of defaults by low-credit-quality corporate issuers continued to decrease (Chart 3.2.4). A total of four defaults on corporate bonds were registered in January-June 2013 (as compared with 12 defaults in the first half of 2012 and six defaults in the second half of the previous year).

The total portfolio of corporate bonds circulating on the domestic market grew by 11% in the first half

4 From February 1, 2013, Bank of Russia Regulation No. 387-P of Sep-tember 28, 2012, “On the Procedure for Market Risk Calculation by Credit Institutions” came into effect, replacing Bank of Russia Regu-lation No. 313-P of November 14, 2007.

The corporate bond market continued to demonstrate an upward trend in borrowing terms, which was prompted by the need for companies to raise long-term resources, including those aimed at developing transport, energy, housing and utilities and social infrastructure (Chart 3.2.2). Almost a third of new corporate bond issues placed in the first half of 2013 (44.2% of the total volume of primary placements) carried maturities of 7-35 years. Two thirds of new bond issues (mostly exchange bonds) were placed with maturities from three to five years. At the same time, the actual maturities of corporate borrowings continued to be shorter due to available options to buy back bonds before the redemption date.

As before, the bulk of corporate bonds placed on the primary market consisted of the issues of reliable borrowers. Specifically, the bonds of investment-grade issuers (with the ratings of BBB-/BBB+) accounted for 33.1% of total corporate placements on the Moscow Exchange while speculative-grade bonds (with the ratings of BB-/BB+, B-/B+) made up 42.4% (Chart 3.2.3). Investor demand for these securities

Table 3.2.2

Corporate bond average yield in the first half of 2013 (% p.a.)

MonthPrimary market*

Secondary market

BBB-/BBB+ BB-/BB+ B-/B+ No rating IFX-Cbonds

I 8.51 9.42 - - 8.34

II 8.20 9.54 11.73 11.34 8.15

III 8.37 10.27 11.34 10.11 8.22

IV 8.35 9.09 11.27 9.87 8.19

V 9.41 - 9.99 13.99 8.12

VI 7.88 9.65 11.40 12.43 8.29* The ratings of corporate bonds placed on the Moscow Exchange are given according to Standard & Poor’s.

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

Table 3.2.3

Coefficients of corporate bond special interest rate risk

Rating* 313-P 387-P (new Regulation)

Above Baa2/BBB (inclusive) 0.25%-1.6% 0.25%-1.6%

Baa3/BBB- 8.0% 0.25%-1.6%

Below Baa3/BBB- 8.0% 12.0%

* The ratings assigned by at least two international rating agencies.

The capital market


of 2013 as compared with the end of 2012 to 4,631.0 billion roubles at par (Chart 3.2.5). The number of corporate bond issues continued to rise while the number of issuers was fairly stable. As of the end of June 2013, the total corporate bond portfolio consisted of 969 bond issues floated by 352 issuers as compared with 884 bond issues floated by 342 issuers as of the end of December 2012. The bonds placed by credit institutions and financial companies continued to hold the largest share in the structure of the corporate bond portfolio by sector (Chart 3.2.6).

The secondary market Secondary market activity remained high in

January-June 2013. The total and average daily volumes of corporate bond secondary trade on the Moscow Exchange increased by 1.0% and 8.5% to 3,146.4 billion roubles and 26.2 billion roubles respectively as compared with the second half of 2012 (these indicators grew by 45.1% and 52.4% respectively as compared with the first half of 2012) (Chart 3.2.7).

Most investors continued to pursue conservative strategies, preferring to invest in the bonds of reliable issuers. The corporate bonds of the 20 leading issuers accounted for almost 50% of the total trade turnover in the period under review (Table 3.2.4). At the same time, a fall in the yields of liquid corporate bonds offered by first- and second-tier issuers made the bonds of third-tier issuers more attractive.

Persisting fears about the global economy and investor lower risk appetite reduced foreign investment in Russian corporate bonds in the first half of 2013. On the domestic corporate bond market, the sales prevailed in non-resident secondary exchange deals in the period under review (Chart 3.2.8). The net foreign capital outflow from the secondary corporate bond market of the Moscow Exchange totalled $3.9 billion in January-June 2013 ($3.2 billion in 2012). The share of non-resident operations in the corporate bond secondary trade turnover on the Moscow Exchange varied from 11.8% to 15.5% in the period under review.



Table 3.2.4

Corporate bond secondary trade on the Moscow Exchange by issuer in January-June 2013 (%)

Russian Railways 9.77Russian Agricultural Bank 3.79FGC UES 3.72VTB Bank 3.56Rosbank 3.04UniCreditBank 2.12Norilsk Nickel 2.10Vnesheconombank 2.06Gazprombank 1.71UTair-Finance 1.67Gazprom neft 1.63Rostelecom 1.60Alrosa 1.53Rosneft 1.50MTS 1.50Bashneft Joint-Stock Oil Company 1.47EvrazHolding Finance 1.41Otkritie Financial Corporation 1.37Sistema Joint-Stock Finance Corporation 1.35RusHydro 1.35Zenit Bank 1.34Vimpelcom 1.33Alfa-Bank 1.31Metalloinvest Holding Company 1.19Moscow Credit Bank 1.18Credit Europe Bank 1.12TransFin-M 1.11MegaFon Finance 1.09Tatfondbank JSICB 1.05AHML 1.05Novolipetsk Steel 1.04Gazprom Capital 1.04Promsvyazbank 1.03VEB-Leasing 1.01Other issuers with a share of 0.5%-1.0% (25 issuers) 16.68Other issuers with a share of 0.2%-0.5% (35 issuers) 10.07Other issuers with a share of less than 0.2% (208 issuers) 9.11302 issuers 100%

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

The yields of the most liquid corporate bonds varied within a narrow horizontal band in the period under review, with three time intervals demonstrating different yield dynamics (Chart 3.2.9).

In January 2013, the domestic corporate bond market was dominated by a downward trend in securities yields amid large volumes of rouble liquidity in the Russian banking sector and higher world oil prices. In February-April 2013, the corporate bond market was characterised by the persistent uncertainty of market participants’ price expectations; the yields of corporate bonds fluctuated within a horizontal band, registering on May 22, 2013, a record low of 8.09% p.a. since late September 2011. In the last ten-day period of May

2013, the yields of corporate bonds grew considerably, demonstrating an upward correction, which was also attributable to investors’ fears that the US Fed would curtail its accommodative monetary policy. In June 2013, corporate bonds yields continued to grow amid an intensified outflow of capital from the domestic securities market and the rouble’s depreciation. The average yields of the most liquid corporate bonds fell to 8.2% p.a. in January-June 2013 from 8.7% p.a. in the first half and 8.8% p.a. in the second half of 2012.

The bonds of credit institutions and financial companies continued to be the largest sectoral segment of the secondary rouble corporate bond market, which corresponded to the sectoral structure of the corporate bond portfolio on the domestic market. These instruments accounted for 48.2% of the total corporate bond secondary trade volume on the Moscow Exchange in the period under review (Chart 3.2.10). As for the instruments of issuers from the non-financial sector, the largest share of the secondary trade on the Moscow

The capital market


Exchange in January-June 2013 was held by the bonds of companies that operated in sectors such as railway transport, metallurgy, electric power, communications, and oil and gas.

Thus, the Russian corporate bond market remained resilient to negative external and internal shocks in the first half of 2013. The quotes of Russian corporate bonds demonstrated growth despite a considerable fall in the prices of risky assets of emerging market economies. As external risks remained high in the period under review, primarily due to a slower global economic activity and the continuing sovereign debt crisis in the eurozone, Russian investors pursued conservative strategies, preferring to conduct transactions with less risky securities, therefore contributing to the growth of trade turnovers on the primary and secondary corporate bond markets.

* * * Until the end of 2013, the domestic corporate

bond market will be influenced by the factors that were in effect in the first half of the year (world commodity and financial market developments and the level of liquidity in the Russian banking system). If inflation slows, the cost of borrowings on the corporate bond market will fall (which will boost the supply of securities on the primary market) and the yields of securities on the secondary market will go down. The admission of foreign clearing companies to the Russian corporate bond market can serve as an additional factor for the growth of market participants’ activity. At the same time, a possible curtailment of QE programmes abroad is expected to reduce the risk appetite of global investors and intensify the outflow of their capital from the Russian securities market, including the corporate bond market.

3.3 The equity marketIn the first half of 2013, the Russian equity market

was influenced by world oil price fluctuations and changes in the sentiments of investors making short-term investments in Russian financial assets. An inflow of long-term investment into the equity market was restrained by weak investment activity amid uncertainty over the prospects for the Russian economy development and the deterioration of the financial standing of some enterprises in the real sector of the economy. These factors intensified the uncertainty of price expectations on the domestic equity market in the period under review.

From February, the Russian equity market witnessed a gradual increase in tension, which was largely related to lower world oil prices. The indicators of the sentiments of domestic equity market participants (the RTS index historical volatility and the market risk premium) moderately increased in February-the first half of April 2013, remaining below their annual average levels registered in 2012. Investor sentiments deteriorated considerably on the domestic equity market in the

second half of May-June 2013 due to higher equity price volatility and a lower risk appetite on the global capital market, as well as the rouble’s depreciation. The RTS index volatility in May-June 2013 came close to its values registered in the period of a considerable deterioration of the Russian equity market in March-June 2012 (Chart 3.3.1) and the growth of the market risk premium accelerated in June 2013 (Chart 3.3.2).

Russian equity prices were considerably influenced by the direction of foreign investors’ capital flows. In January, April and May 2013, an inflow of non-resident funds into the secondary equity market facilitated the growth in the prices of securities, whereas a foreign capital outflow observed in the remaining months contributed to their decline. In the period between February and the first half of April, the negative effect of non-resident capital outflow on the Russian equity market was intensified by a fall in world oil prices. As investors showed less interest in Russian highly risky assets, the monthly volumes of non-resident



transactions with equities on the secondary market of the Moscow Exchange were on average significantly lower in January-June 2013 than in the previous year. In June 2013, non-resident capital outflow from the Russian equity market intensified due to the fears of the forthcoming curtailment of the Fed’s QE programme and the growing risk aversion on the global capital market (see Box “Effects of the Fed’s QE Policy on the Russian Securities Market”). Overall, the secondary equity market of the Moscow Exchange (Main Market) registered a net foreign capital outflow of $700 million in January-June 2013 as compared with $600 million in the first half and $3.7 billion in the second half of 2012 (Chart 3.3.3). At the same time, the share of non-resident operations in the total equity secondary trade turnover on the Moscow Exchange (Main Market) continued to grow and reached 39% on average in the first half of 2013 as against 37% in 2012.

Russia’s MICEX and RTS stock indices were mostly seen to decline in January-June 2013, returning by the

end of this period to their minimal levels registered since early 2012. The slump in equity price indices was partly caused by their speculative acceleration in the preceding period between June 2012 and January 2013, which created pre-requisites for their drastic downward correction in early 2013. Similar trends were observed on most of the stock markets of Russia’s partners in the BRICS group while Russia’s RTS index continued to demonstrate the greatest volatility among the stock indices of these countries. Different dynamics were demonstrated by the major stock indices of developed countries, which continued to grow up until the third ten-day period of May, following which they experienced a downward correction amid an increased tension on the global capital market in the wake of the Fed’s plans to scale down its accommodative monetary policy.

In the first half of 2013, the MICEX index fell by 9.8% as compared with the end of December 2012 to close at 1,330.46 points as of June 28, 2013, while the RTS index decreased by 16.5% to 1,275.44 points

The capital market


Effects of the Fed’s QE Policy on the Russian Securities Market

The Fed’s plans to end a third round of quantitative easing1 (QE3) have increased the significance of monetary stimulus side effects and the response of the financial markets of advanced and developing countries to its completion. One of the side effects of quantitative easing could be the emergence of financial asset price bubbles amid excessive liquidity on the global financial market and investors’ increased risk appetite. A primary impulse to asset price growth is frequently given by an announcement of the launch of an accommodative monetary policy or its expectation. An exit from quantitative easing or the expectation of such a decision triggers the mechanism of reverse impulses that cause investor flight from risky assets and the price bubble collapse.

effect from the implementation of the Fed’s quantitative easing programme (QE1, QE2 and QE3)

effect from the curtailment of the Fed’s QE1, QE2 and QE3

Chart data source: Bloomberg, the Moscow Exchange, calculations made by the Bank of Russia Research and Information Department.

The Russian stock market sentiment indicators – the premium for the risk of financial instruments (the CDS-spread2 on Russia’s sovereign foreign currency bonds) and the indices of price volatility on the external and domestic equity markets

1 The direct purchase of government and corporate securities by monetary authorities on the financial market.2 CDS-spreads are calculated by CMA company, which is part of the CME Group Company integrating the four major exchanges in the US (CME, CBOT, NYMEX

and COMEX).



37.4% as compared with the second half of 2012 to $5.4 billion (Chart 3.3.6, Addendum, Table 5).

Equity trading on the secondary market also declined. The total equity secondary trade turnover on the Moscow and St Petersburg Exchanges contracted by 11.2% as compared with the second half of 2012 (Table 3.3.1).

The fall of Russian equity prices reduced the equity market capitalisation in the first half of 2013, despite the growth in the number of securities in free float. The equity market capitalisation on the Moscow Exchange (Classica) decreased by 12.8% as of June 28, 2013 as compared with the end of 2012 to $712.7 billion (Chart 3.3.7).

(Chart 3.3.4). The stock indices of the other BRICS countries also declined (by 0.2%-22.1%), except for the South Africa stock index, which grew by 0.8%. At the same time, the stock indices of advanced countries demonstrated positive growth in the period under review, increasing by 1.2%-31.6% (Chart 3.3.5).

Weaker external and internal investment demand, along with unfavourable developments on the domestic equity market in the first half of 2013, affected the value and the number of Russian share offerings in Russia and abroad. Most of the share placements announced by Russian issuers were postponed for an indefinite period of time. Overall, only seven Russian issuers were able to enter the public borrowing market in January-June 2013. The total amount of funds they managed to attract from public share offerings on Russian and foreign stock exchanges in January-June 2013 contracted by

(VIX3 and RTSVX4) were seen to fall on investor optimism during the periods of the Fed’s accommodative monetary policy5 and to rise after their completion, reflecting the uncertainty of price expectations on the capital market.

The cumulative effect of the first two rounds of quantitative easing (QE1 and QE2) for the Russian equity market was quite considerable.6 At the same time, world oil prices remained the main factors driving the growth of Russian stock indices. In the period from November 2008 to April 2011, the MICEX index grew by 213%7, which was comparable with the growth registered in the pre-crisis period when a price bubble emerged on the domestic equity market. The stock indices of Russia’s partners in the BRICS group (Brazil, India and China) showed growth rates that were considerably lower than the Russian indicators.8 After each of the rounds of quantitative easing was over, the equity markets of all BRICS countries experienced downward price corrections on a scale that increased with the growth of price bubbles. The Russian bond market was also influenced by the impulses of the first two rounds of the Fed’s quantitative easing: the yields of rouble-denominated government and corporate bonds fell by 63% and one third respectively over the period of their implementation.

The effect of a third round of quantitative easing was less marked for the Russian securities market and the reversal of market sentiment indicators, as well as equity and bond price indices occurred long before the Fed announced plans in the second half of June 2013 to scale down its accommodative monetary policy. Owing to this, the fact of its completion is unlikely to exert a considerable influence on the main segments of the Russian securities market.

3 VIX – the US stock market volatility index calculated by the Chicago Board Options Exchange (CBOE), using implied volatilities of Standard & Poor’s 500 index options.

4 RTSVX – the Russian stock market volatility index calculated by the Moscow Exchange, using the methodology similar to the VIX index calculation.5 The Fed’s measures for liquidity provision to financial intermediaries and the first round of quantitative easing (QE1) were implemented from November 25,

2008 to March 31, 2010; the second round (QE2) was held from November 3, 2010 to June 30, 2011 and the third round (QE3) has been in effect since September 13, 2012.

6 For details, see The Financial Market Review, 2012.7 The difference between the MICEX Index extremums (the minimum and the maximum). This indicator for the RTS Index was 207%.8 Most stock indices of the emerging market countries that are Russia’s partners in the BRICS group (Brazil, Russia, India, China and South Africa) were seen to

grow until November 2010. Their growth ranged from 67% to 142% in the period from November 2008 to November 2010.

Table 3.3.1

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

Stock Exchange

2012 2013 Growth in the first half of 2013

on the second half of 2012, %

The first half

The second half

The first half

The Moscow Exchange 6,915.8 4,593.7 4,078.7 -11.2

The St Petersburg Exchange 0.07 0.04 0.02 -45.2

Total 6,915.9 4,593.7 4,078.8 -11.2Source: The Moscow Exchange, the St Petersburg Exchange, calculations made by the Bank of Russia Research and Information Department.

The capital market


Investors’ differing preferences influenced both the dynamics and growth rates of price indices in the main sectoral segments of the Russian equity market. MICEX sectoral indices were seen to decrease in the period under review, with the rates of their change varying across a wide range. The sectoral indices which registered the biggest fall in the period under review included Energy (32.7%), Metallurgy (31.1%) and Machine-Building (14.0%) while the sectoral indices which recorded lesser losses included Telecommunications (9.0%), Oil and Gas (8.6%), Chemicals and Petrochemicals (7.3%) and Finance (5.3%). The sole exception was the Consumer Sector Index, which grew by 16.3% (Chart 3.3.11).

The rates of growth in the prices of most of liquid Russian stocks in January-June 2013 were negative and varied from 3.8% to 49.2% (Chart 3.3.12). Positive price growth rates were demonstrated by the shares of the largest issuer in the consumer sector - Magnit (53.1%), telecommunications - MTS (5.3%) and the banking sector – Sberbank (0.7%). The prices of most

The shares of credit institutions and oil and gas companies continued to account for the largest amount of equity trading in the total equity secondary trade turnover on Russia’s major exchanges (the Moscow Exchange and the St Petersburg Exchange) in January-June 2013 (Chart 3.3.8 and Chart 3.3.9). The equities of Sberbank, the premier issuer in the banking sector, held a significant lead among these shares (Chart 3.3.10) and the relatively stable demand for Sberbank’s instruments contributed to the growth of the of bank share segment in the structure of secondary trade turnovers of these exchanges. The volumes of operations with the shares of oil and gas and metallurgical companies, on the contrary, were seen to decline amid the deterioration of global commodity markets. At the same time, persistent positive trends in the consumer sector (the growth of consumer demand and household real disposable money income, which contributed to the expansion of the output of goods and services) kept investors’ interest in the shares of consumer sector companies.



of actively traded second- and third-tier stocks were also seen to fall (by 0.1%-94.0%) while some instruments from this category were observed to grow (by 1.0%-233.0%).

Thus, the situation on the Russian equity market deteriorated in the first half of 2013 as compared with the second half of 2012. The reduced demand for Russian highly risky financial assets contributed to the continued capital outflow from the domestic equity market and the deterioration of its main quantitative parameters (market capitalisation, the values of its primary and secondary segments and equity price indices).

* * *The Russian equity market in the second half of

2013 will be influenced by developments on world stock and commodity markets, the level of investment activity and the prospects of domestic and global economies. As the world’s monetary policies are expected to remain focused on stimulating measures until the end of 2013 (specifically, with the focus on keeping key interest rates low), this factor, in the absence of new negative shocks, will help regain investor interest in the risky assets of emerging market economies (including Russia), which depreciated considerably in the first half of the year.

3.4. Loan and deposit marketsIn the first half of 2013, the Russian loan and

deposit markets developed amid a slow growth of the domestic economy, low investment activity of non-financial organisations, a considerable capital outflow from the country and persistent inflation risks. At the same time, stable consumer demand and labour market helped banks intensively build up the volumes of retail lending. The growth of household incomes and greater public propensity for savings maintained positive dynamics on the retail deposit market.

The value of loans extended to non-financial organisations grew by 5.3% in the first half of 2013 (6.2% in the first half of 2012) to 21,030.2 billion roubles as of July 1, 2013 (Chart 3.4.1). The monthly value of corporate loans in January-June 2013 was affected by seasonal factors and revaluations of their foreign currency component due to the Russian rouble’s fluctuations against the US dollar (Chart 3.4.2).

The pre-requisites for a slower growth in corporate lending in the first half of 2013 were formed both in the banking and real sectors of the Russian economy. A large net private capital outflow from Russia in the first half of 2013 was partly caused by a net outflow of capital by Russian banks. Banking sector capital adequacy continued to contract in January-June 2013. A slow growth of industrial production, lower fixed capital investment and the deterioration of some indicators characterising the performance of non-financial organisations restricted their possibilities for raising loans. A slower growth of the corporate loan portfolio in the first half of 2013, according to analysts, could also be explained by a seasonal excess of loan redemptions over loans extended to corporate borrowers. In addition, non-financial organisations were able to meet their needs for borrowed funds in the first half of 2013 partially through the issuance of bonds and borrowings abroad.

Changes in the terms of bank lending were insignificant in the first half of 20135. As before, competition was a principal factor to ease the terms of bank lending. Banks were seen to extend maturity and loan value and offer new credit products. At the same time, banks continued to tighten their requirements for a borrower’s financial position. As banks continued to compete for reliable borrowers, some of the largest lenders (for example, Sberbank) were seen to cut

5 For details, see Bank of Russia Bulletin No. 30 (1426) of May 29, 2013.

The capital market


repeatedly corporate loan rates in the first half of 2013. Nevertheless, average-weighted interest rates on rouble loans to non-financial organisations with basic maturities fluctuated insignificantly in the first half of 2013. Specifically, in June 2013, the average weighted interest rate equalled 9.5% p.a. on rouble corporate loans with maturities of up to one year and 11.3% p.a. on loans with maturities of over one year (Chart 3.4.3). In real terms, interest rates on loans to non-financial organisations remained positive.

Rosstat periodic surveys show that loan interest rates continue to hold the fifth place in the hierarchy of factors restraining industrial production growth, after high taxation, economic uncertainty, the shortage of financial resources and the wear/absence of equipment6. Total loan affordability for the industry7 in the first half of 2013, according to the market research polls of the Gaidar Institute for Economic Policy, was assessed as ‘normal or above-normal’ by about 70% of polled organisations. Own funds continued to be the main source for organisations to finance their fixed capital investment while the share of bank loans in the structure of such investment remained low (9.9% in 2013 Q1). Only every third large and medium-sized organisation used loans and borrowed funds (including bank loans) for investment financing8.

In the first half of 2013, non-financial organisations borrowed loans in foreign currency much motre, especially from state-controlled banks. In expert estimates, this trend could be explained by the fact that

6 Rosstat regularly surveys business and investment activity of about 4,500 and 10,000 organisations across three types of economic ac-tivity: “Hydrocarbon Production and Mining”, “Manufacturing In-dustries” and ‘Electricity, Gas and Water Production and Distribution’ (excluding small enterprises).

7 Based on the results of a selected poll of the heads of borrower or-ganisations who assessed bank loan affordability using their internal methodologies.

8 Based on Rosstat data.

the build-up of bank lending was largely facilitated by organisations engaged in foreign-trade operations.

Wholesale and retail trade organisations, which showed the most noticeable build-up of their loan portfolios (by 9.0%) in the first half of 2013, continued to prevail in the sectoral structure of corporate loans (Chart 3.4.4). The quality of loans extended to these organisations was observed to improve, which was probably explained by the growth of retail trade turnover (by 3.5%) in January-June 2013 year on year.

In the period under review, banks continued to expand lending to small and medium-sized enterprises (SMEs) more actively as compared with large corporate borrowers. The volume of loans extended to SMEs increased by 8.4% in January-June 2013 while lending to large non-financial organisations grew by 6.2%. The outpacing growth of loans to SMEs as compared with large borrowers could be partly explained by further development of credit factories aimed at extending micro-loans9 (for a sum of up to 5 million roubles) based on scoring systems. Many banks were seen to develop new credit products for this category of borrowers, offer individual terms and consulting services free of charge, extend loan maturities and a list of acceptable collateral and reduce the size of additional fees and charges. Despite these measures, the volume of SME loans grew slower in the first half of 2013 year on year as some SMEs were forced to scale down or even terminate their activities as a result of an increase in social insurance payments and the deterioration of the macro-economic situation.

The growth of non-financial organisations’ overdue loans slowed in the first half of 2013 as compared with the same period of 2012. The share of overdue corporate loans in their total volume was almost unchanged from

9 Such loans are considered to be more risky, which allows banks to extend them at higher interest rates and use “expensive” household deposits as their funding base.



early 2013 and stood at 4.5% as of July 1, 2013. Some banks sold large debts of non-financial organisations at auctions in the first half of 2013 to improve the quality of their corporate loan portfolios.

Retail loan portfolios continued to grow faster than corporate and interbank loan portfolios in January-June 2013. The volume of loans extended to individuals grew by 13.7% in January-June 2013 (18.4% in the same period of 2012) to 8,797.6 billion roubles (23.6% of the bank total loan portfolio) as of July 1, 2013 (Chart 3.4.5). Retail lending dynamics in the first half of 2013 were restrained to some extent by the Bank of Russia’s measures to regulate consumer loan risks with a tighter procedure for banks to make provisions for loans and the requirement to take them into account for capital adequacy calculation.10 According to Rosstat data, the Consumer Confidence Index comprising household assessments of their prospects for large purchases on credit demonstrated positive dynamics in the first half of 2013. The household demand for bank loans during this period was fairly high, according to expert estimates, despite the impact of seasonal factors11.

Interest rates on short-term rouble loans to households in June 2013 were close to the level registered at the start of the year while these rates on long-term loans continued to demonstrate a gradual downward trend observed from February 2013.

10 From March 1, 2013, the Bank of Russia raised minimum provi-sions for unsecured loans issued from January 1, 2013: to 2% for the portfolio of loans without overdue payments and to 6% for loans with overdue payments of no more than 30 days. It also introduced a new minimum reserve requirement for portfolios of loans with overdue payments of over 360 days (100%). For consumer loans extended after July 1, 2013, with the effective interest rate high-er than 25% p.a. for rouble loans (20% p.a. for foreign currency loans), higher risk coefficients will be applied in calculating capital adequacy ratios.

11 Specifically, Sberbank’s Financial Sentiment Index indicates that household propensity for buying on credit demonstrated an unsteady growth trend.

Average-weighted interest rates on household rouble loans equalled 24.4% p.a. for maturities of up to one year and 19.3% p.a. for maturities of over one year in June 2013 and were positive in real terms (Chart 3.4.3). Some banks were seen to cut the cost of retail loan products in the first half of 2013, primarily as part of their seasonal actions and for regular customers.

Relatively high interest rates and large household overdue loans caused further growth of the debt load on household income. In particular, the current debt load indicator (the ratio of loan principal and interest payments to money income, excluding mandatory payments) already stands at about 20% and tends to grow. At the same time, the ratio of household loans to Russia’s GDP exceeds 13% as compared with over 50% in most developed countries and 30-40% in Central and East European countries demonstrating economic development close to Russia’s level (Lithuania, Poland, Latvia and Hungary)12.

Consumer lending continued to be a driver of the retail loan market in the first half of 2013. The volumes of consumer loans grew by 15.9% in January-June 2013 as compared with 25.6% in the same period of 2012 to 5,184.4 billion roubles as of July 1, 2013. Consumer loans (generally unsecured ones) accounted for over 60% of the retail loan portfolio (Chart 3.4.6). Consumer lending remained one of the most profitable and competitive segments of the banking services market where state banks and private lenders were virtually equally represented. However, in the first half of 2013, some state-controlled banks reduced their interest in this highly risky type of lending. The consumer loan market cooling was generally related to the Bank of Russia’s measures to tighten the procedure for banks to make provisions for consumer loans and the requirement to take them into account for capital adequacy calculation (Chart 3.4.7).

12 Based on IMF data.

The capital market


The volume of housing mortgage loans (hereinafter referred to as mortgages) grew by 10.8% in January-May 2013 (10.9% in the same period of 2012) to 2,213.6 billion roubles as of June 1, 201313. The average-weighted interest rate on rouble mortgages fell to 12.6% p.a. in April after its growth in February and March 2013 and in May it returned to the level registered in early 2013 (12.7% p.a.). The development of bank preferential loan programmes (with reduced or subsidised interest rates) jointly with developers, including the programmes of lending for housing under construction, and also the offer of programmes without down payments14 had a positive effect on the domestic mortgage market in the first half of 2013. State-controlled banks, the Agency for Housing Mortgage Lending and development institutions remained major players on the domestic mortgage market. Specifically, the banks participating in the programme of investments in affordable housing projects of the state corporation “Bank for Development and Foreign Economic Affairs (Vnesheconombank)” provided loans worth over 140 billion roubles as of May 1, 2013, therefore fulfilling almost 95% of the programme15.

The car loan market demonstrated a fairly stable development in the first half of 2013 amid a slower growth in car sales. Household car loans grew by 9.3% in January-June 2013 (10.2% in the same period of 2012) to 818.6 billion roubles as of July 1, 2013. Competition on the car loan market intensified as new banks representing car producers entered the market. Only few banks cut interest rates on car loans while the

13 Based on the data of bank reporting Form 0409316. 14 Most banks combined various kinds of preferences on mortgage

loan products with higher interest rates and additional collateral.15 This state programme has been in effect since 2010. As part of this

programme, banks extend mortgage loans for housing under con-struction at an interest rate of no more than 11% p.a. and issue mortgage-backed bonds (with yields of about 8% p.a.), which are subsequently purchased by Vnesheconombank.

most important instrument of bank competition for borrowers was easing non-price terms of lending.

The value of overdue retail loans (first of all, overdraft credit cards) was observed to accelerate considerably in the first half of 2013 year on year16. However, the volume of loan loss provisions created for household loans almost fully covered problem and loss loans (bad debts) to this category of borrowers. Some banks were transferring their consumer lending business to subsidiary microfinance organisations (MFOs) to cut the volume of provisions for consumer loans17.

The Bank of Russia’s measures to tighten the procedure for making provisions for consumer loans and the resulting increase in the load on bank capital contributed to the intensive development of the cession market (the assignment of claims to third parties). The value of household bad debts, which banks sold to debt collection agencies, totalled 68 billion roubles in the first half of 2013, exceeding almost two-fold the level registered in the same period of 2012. On an annual basis, the growth rate of the volume of household debts sold by banks reached 94% as of July 1, 2013, a record figure for the entire post-crisis period18.

Funds banks raised from organisations and households remained the main sources of funding for the Russian banking sector in the first half of 2013 amid the relatively stable situation with bank liquidity. The

16 The consumer credit health index (FICO Credit Health Index), which registered a historical high of 115 points on January 1, 2012, fell to 108 points as of April 1, 2013. 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).

17 Expert estimates show that about 50 banks implicitly own MFOs and finance their activities, therefore lending to households through intermediaries.

18 Based on the estimates by CJSC Sequoia Credit Consolidation and Filbert, a collection agency.



individuals) were opening deposits with banks, seeking to secure the current level of yields for the longest possible term.

In the period under review, a downward trend in interest rates on household deposits developed as banks were seeking to maintain their competitiveness on the loan market with the cheaper cost of funding. In particular, the average maximum rate on rouble deposits among the top ten banks attracting the largest value of retail deposits registered a local maximum of 10.00% p.a. in the second ten-day period of January 2013 and was observed to decline unsteadily in the subsequent months, falling to 9.26% p.a. in the third ten-day period of June23. In addition, the ‘higher’ interest rates banks offered as part of various actions and seasonal products in 2013 Q2 were seen to be on average by 0.2-0.5 pp lower than the rates on similar products in Q1. Some of the largest banks, primarily Sberbank, cut interest rates on household deposits considerably in the first half of 2013 (Addendum, Table 5).

Medium-sized and small banks offered the most attractive terms for household deposits. This policy allowed them to attract household deposits more intensively as compared with the largest banks. As a result, the share of the 30 largest banks, including Sberbank, on the household deposit market decreased in the first half of 2013.

Competition for depositor money in the first half of 2013 was observed not only among banks but also among banks and MFOs. During this period, to finance their activities, MFOs were attracting household funds24 pursuant to loan agreements at rates several times

23 This rate is calculated by the Bank of Russia to determine the indicative level of deposit rates in the banking sector.

24 Federal Law No. 151-FZ of July 2, 2010, “On Microfinance Activities and Microfinance Organisations” allows attracting funds of no more than 1.5 million roubles per retail customer.

value of funds19 placed by corporate entities (other than credit institutions) on bank deposits grew by 9.1% in January-June 2013 (this value contracted by 1.8% over the same period of 2012) to 10,493.0 billion roubles as of July 1, 2013 (almost 20% of banking sector total liabilities). The funds deposited by the Federal Treasury, the Finance Ministry and other government bodies contributed over 50% to the growth of corporate deposits over this period (Chart 3.4.8 and Chart 3.4.9).

The growth of the corporate deposit value in January-June 2013 was facilitated by an improvement of non-price deposit conditions, especially by the largest banks. The share of the 30 largest banks on the corporate deposit market exceeded 82% in the period under review20.

The value of household deposits21 placed with Russian banks increased by 9.7% in the first half of 2013 (8.1% in the same period of 2012) to 15,632.0 billion roubles as of July 1, 2013 (about 30% of total banking sector liabilities) (Chart 3.4.10). Deposits with terms of over one year accounted for almost 90% of the growth of household deposits during this period and prevailed in their total value.

The growth of household real disposable money income, relatively attractive interest rates on deposits and the effect of their capitalisation, as well as a rise in the public propensity for savings22 were the main factors behind the expansion of the value of household deposits in the first half of 2013. As interest rates on the deposit market were expected to fall, customers (private

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

20 The main players on the corporate deposit market are Sberbank, VTB Bank and VTB 24.

21 Including savings certificates. 22 According to Rosstat data, savings in the form of deposits and

securities accounted for 6.6% of household money income use in January-June 2013 and slightly exceeded the level registered in the same period of 2012.

The capital market


Credit institutions expanded their securities portfolios by 5.7% in January-June 2013 (6.0% in the same period of 2012) to 7.4 trillion roubles mainly through the purchases of securities included in the Bank of Russia Lombard List. The share of securities in the structure of bank assets was almost unchanged in the period under review (Chart 3.5.1).

The total value of NPFs’ own assets as a source of their investments on the capital market grew by 10.0% in 2013 Q1 (11.4% over the same period of 2012) to 1,706.0 billion roubles25. Pension accumulations transferred from the Pension Fund of Russia (PFR) boosted the NPF investment potential. The largest increase in the structure of the NPF investment portfolio was registered in the value of funds on bank accounts and deposits, which grew by 27.9% while NPFs’ securities portfolios rose by 1.7%.

Insurer assets increased by 1.8% in 2013 Q1 largely due to reinsurance operations. Insurer securities portfolios fell by 4.9% in the period under review26.

MCs participating in the CPI system registered a contraction of their securities portfolios by 7.3% in 2013 Q1 as compared with their 1.8%-growth year on year to 1.2 trillion roubles.27 This decrease was largely caused by the fact that 4.7 million participants in the CPI system transferred their pension accumulations from

25 Data of the Federal Financial Markets Service (FFMS) and data provided under federal statistical monitoring Form No. 1-FS (NPF) approved by Rosstat Order No. 308 of December 10, 2008 were used to assess the of NPF activities, unless indicated otherwise.

26 FFMS data and data provided under federal statistical monitoring Form No. 1-FS (SK) “Information on the Areas of Insurer Borrowings and Investments” approved by Rosstat Order No. 308 of December 10, 2008 were used to assess the activity of insurance companies.

27 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.

exceeding bank deposit rates. To make their products more attractive, MFOs started to sign agreements with insurance companies to guarantee the return of funds to their customers.

* * *Therefore, the build-up of bank lending to non-

financial organisations and households slowed down in the first half of 2013 amid the prevailing macroeconomic trends. Although the Bank of Russia tightened the procedure for making consumer loan provisions, retail lending continued to grow considerably faster than corporate lending during this period. Changes in bank lending terms for non-financial organisations and households were insignificant and were limited to the level of competition in a specific segment of the loan market. The quality of the bank corporate loan portfolio was almost unchanged while the quality of the retail loan portfolio slightly deteriorated. The deposit market developed steadily in the first half of 2013. As banks sought to restrain further growth in the cost of funding on the deposit market, they tended to cut interest rates on household deposits.

3.5. Credit institutions and non-bank financial organisations on the capital market

The investment possibilities of Russian financial institutions on the capital market changed differently in the first half of 2013. Credit institutions and non-governmental pension funds (NPFs) increased their securities portfolios as a result of the expansion of their resource base. The net outflow of client money from management companies (MCs) participating in the compulsory pension insurance system (CPI) and individual trust management schemes, as well as from retail (open-end and interval) unit investment funds (PIFs) was a major reason for the reduction of their securities portfolios.



had no significant impact on the structure of the funds’ total investment portfolio due to the small volume of such investments.

In the sectoral structure of retail PIFs’ equity portfolios in 2013 Q1, the biggest contraction was demonstrated by the portfolios of equities of ferrous metallurgy companies (over 40%) and the largest increase (almost three-fold) by the portfolios of equities of agricultural organisations (Chart 3.5.3).

NPFs reduced their portfolios of the shares of credit institutions and non-financial organisations (by 8.8% and 4.5% respectively) and expanded their portfolios of the equities of non-bank financial organisations (by 1.3%) in 2013 Q1.

The issuer structure of bank portfolios of equity securities changed insignificantly in January-May 2013 (Chart 3.5.4).

In the first half of 2013, credit institutions, retail PIFs and NPFs increased their debt securities portfolios.

Bank debt securities portfolios grew by 8.6% in January-June 2013. Debt obligations transferred

Vnesheconombank (VEB) state management company to NPFs.

The securities portfolios of retail funds decreased by 5.8%28 in 2013 Q1 due to the negative investment result and the net outflow of unit holder money from most of PIF categories of (Chart 3.5.2). The largest contraction was registered by index-linked PIFs (their securities portfolios fell by 27.4%). The securities portfolios of bond PIFs grew by 13.2% largely as a result of the purchase of corporate bonds.

The volume of funds held by the MCs participating in individual trust management schemes decreased by 8.1% in 2013 Q1 to 397 billion roubles29 due to the net outflow of customer money. MC clients transferred a part of their funds to bank accounts and deposits, and also for the development of their own businesses.

Credit institutions and most types of non-bank financial organisations chiefly pursued conservative investment strategies on the capital market in the first half of 2013 amid downward dynamics of the main Russian stock market indices.

Almost all types of financial institutions reduced their equity securities portfolios in the first half of 2013. MCs participating in the CPI system decreased their equities portfolios by almost 88.9%, PIFs by 17.9%, insurers by 2.5% and NPFs by 0.9% in 2013 Q1. Bank equity securities portfolios contracted by 7.3% in January-June 2013.

Among non-bank financial organisations, the growth of equity portfolios in 2013 Q1 was demonstrated by bond PIFs (29.4%). However, this rise

28 Data of Cbonds.ru were used to assess PIF activities, unless indicated otherwise. Here and below, the estimate excludes PIFs, which had the status of qualified investor funds as of July 1, 2013. Under Federal Law No. 334-FZ of December 6, 2007, “On Amending the Federal Law on Investment Funds and Some Russian Laws”, qualified investor PIFs do not publicly disclose information on their activities.

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

The capital market


without derecognition dominated the structure of such portfolios (Chart 3.5.5). In their management of debt securities portfolios, credit institutions took into account the possibility of using such securities as collateral in refinancing operations with the Bank of Russia.

Retail PIFs’ bond portfolios grew by 8.7% in 2013 Q1, with almost 90% of this growth resulting from corporate bonds.

NPFs built up their debt securities portfolios by 4.2% in 2013 Q1, mostly as a result of buying corporate bonds of issuers with high credit ratings. NPFs increased their portfolios of the debt securities of non-financial organisations and non-bank financial institutions by 9.8% and 6.8% respectively. Their total share of NPFs’ portfolios of debt securities reached 39.1% as of April 1, 2013 (Chart 3.5.6). NPFs’ portfolios of government securities contracted by 15.7% in the period under review.

Among the main types of non-bank financial organisations, a contraction of bond portfolios in 2013

Q1 was registered by insurance companies (by 5.9%) and MCs participating in the CPI system (by 4.7%). MCs participating in the CPI system largely reduced their portfolios of GSOs and OFZs. Vnesheconombank management company increased its portfolio of mortgage-backed bonds by 10.7% to 40 billion roubles in the period under review as part of Vnesheconombank’s programme of investments in affordable housing construction in 2010-2013.

Russian financial institutions expanded their portfolios of foreign securities in the first half of 2013 amid a relative stabilisation on world stock markets. Such portfolios of Russian credit institutions grew by 20.2% in January-June 2013 while MCs participating in the CPI system increased their portfolios of the securities of international financial organisations by almost six-fold. Retail PIFs enlarged their portfolios of foreign issuers’ securities by 3.6%, mostly by buying foreign equities and depositary receipts.

The results of investment activity conducted by credit institutions and most types of non-bank financial organisations deteriorated in the first half of 2013 year on year. Net interest income received by credit institutions from operations with securities fell by 28.6% in 2013 Q1 as compared with the same period of 2012 to 71.2 billion roubles30. Almost 70% of retail PIFs registered a decrease in the unit price in the first half of 2013 (as compared with 50% a year earlier) (Chart 3.5.7). The investment income of MCs participating in the CPI system fell by 14.6% in 2013 Q1 year on year to 29.9 billion roubles.

The highest investment results in the period under review were demonstrated by non-bank financial organisations, which pursued conservative strategies on the securities market. For example, the largest unit price growth among retail PIFs (1.5% in January-May 2013) was demonstrated by bond PIFs. In the CPI segment, the

30 Excluding revenues from the revaluation of securities.



largest yields during this period were demonstrated by MCs, which predominantly held bonds in their securities portfolios.

* * *Thus, growth in the securities portfolio was

registered by credit institutions and NPFs in the first half of 2013. At the same time, MCs participating in the CPI and individual trust management schemes, insurance companies and retail PIFS showed a contraction of their investment portfolios.

Most financial institutions pursued conservative strategies on the capital market amid persisting high investment risks. The results of investment activities

conducted by credit institutions and most types of non-bank financial organisations deteriorated in the period under review as compared with the corresponding period of 2012. The best investment results were demonstrated by financial institutions, which predominantly held bonds in their securities portfolios.

No considerable changes are expected in the second half of 2013 in the investment strategies of credit institutions and most types of non-bank financial organisations. Given persistent downward trends in Russian stock market main indices, financial institutions will continue to build up the share of fixed-income instruments in their investment portfolios, in particular, bonds and funds on bank deposits and accounts.


The situation on the Russian derivatives market in the first half of 2013 continued to be influenced by the markets of underlying assets and was generally stable.

The value of exchange trades in derivatives slightly increased in the period under review as compared with the second half of 2012 (Chart 4.1). The average daily volume of trades in futures on the Moscow Exchange grew by 21.4% to 5.0 million contracts. Average open interest in futures on this exchange in the first half of 2013 also increased and amounted to 7.7 million contracts, which represents a 7.6%-growth as compared with the second half of 2012 (Table 4.1 and Table 4.2). The daily turnover velocity ratio of futures contracts in the compared periods was unchanged and stood at 0.6.

The simultaneous growth of trade turnovers and open positions on the futures market may evidence a lower role of short-term speculative operations. Open positions held for a long time normally characterise hedging and investment portfolio management operations. This assumption can be partly confirmed by a higher maturity of operations on the futures market. Specifically, the share of futures with maturities of up to three months fell by 3.1% in trade turnover on

the Moscow Exchange in the period under review as compared with the second half of 2012 but remained dominant (93.4%). The share of futures with maturities from three to six months rose by respective 3.0% to 6.4% in the period under review. The share of contracts with maturities of over six months was unchanged and stood at less than 1%.

The Moscow Exchange, the Russian leading trading floor for derivatives, considerably expanded a range of traded contracts in the period under review (Addendum, Table 6) in the foreign exchange segment (futures on new currency pairs), the segment of futures on interest rates (contracts on the basket of 15-year federal loan bonds) and stock futures (contracts on Yandex shares). In addition, calendar spreads for the RTS index futures and dollar/rouble exchange rate futures were launched in the SPECTRA trading system of the Moscow Exchange’s futures market. A calendar spread allows for simultaneous trading in two futures contracts on the same underlying asset but with different delivery dates and opposite positions and considerably simplifies the rollover of open positions to the next term.

In addition, the Moscow Exchange extended the maturities of options on the MICEX index and VTB Bank

Table 4.1

Derivatives turnover by exchange and instrument (billions of roubles)

InstrumentsTotal for all exchanges (the first half of 2012)

Total for all exchanges (the second half of

2012)


Total for all exchanges The Moscow Exchange The St Petersburg

Exchange Stock futures 17,144.5 15,105.5 15,112.0 15,112.0 -

Of which: Futures on single stocks 1,540.8 1,276.9 1,760.6 1,760.6 -Futures on RTS index 15,472.3 13,735.8 13,235.6 13,235.6 -Futures on other stock indices 131.5 92.8 115.8 115.8 -

Currency futures 5,409.9 8,241.0 8,698.0 8,479.5 218.5Of which: Futures on the dollar/rouble exchange rate 4,545.0 7,276.0 6,567.6 6,567.6 -Futures on the euro/dollar exchange rate 623.3 723.3 1,655.7 1,655.7 -Other futures 241.6 241.8 474.6 256.1 218.5

Commodity futures 442.8 548.1 734.8 734.8 -Interest rate futures 106.6 113.3 94.8 94.8 -

Of which: Futures on short-term interest rates 0.2 1.9 0.7 0.7 -Futures on long-term interest rates (OFZ baskets) 106.4 111.4 94.0 94.0 -

Options 1,511.3 1,697.4 1,930.3 1,930.3 -Of which: Stock options 1,476.9 1,652.0 1,856.7 1,856.7 -Currency options 24.5 39.7 67.4 67.4 -Commodity options 9.9 5.8 6.2 6.2 -

Total for all instruments 24,615.1 25,705.4 26,569.9 26,351.4 218.5

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

4. The derivatives market



common shares after requests from futures market participants.

Most segments of the derivatives exchange market demonstrated positive growth in trading volumes (Chart 4.2), with the sole exception being the segment of interest rate futures. As trades in futures on gold and the Brent crude oil blend increased amid a considerable fall in gold prices, as well as oil price fluctuations on the spot market, the largest growth in trading volumes was registered in the segment of commodity futures in the period under review.

Stock futures remained the largest segment on the futures market, despite a contraction of its share in the total volume of derivatives exchange trades from 59% in the second half of 2012 to 57% in the first half of 2013. The value of exchange transactions with futures steadily exceeded the value of spot operations on the Russian stock market (Chart 4.3). The structure of the segment of stock futures by instrument did not

Table 4.2

Open interest in derivatives on the Moscow Exchange (average for the period, millions of contracts)

Type of contractsThe first half

of 2012The second half of 2012


Futures 6.6 7.2 7.7Of which:Stock futures 2.7 3.1 3.3Currency futures 3.2 3.1 3.3Commodity futures 0.2 0.3 0.3Interest rate futures 0.5 0.7 0.8

Options 1.5 2.0 2.4Of which:Stock options 1.3 1.8 1.9Currency options 0.2 0.2 0.5Commodity options 0.02 0.02 0.03Total 8.0 9.2 10.1

Source: The Moscow Exchange, calculations made by the Bank of Russia Research and Information Department. undergo any considerable changes in the first half of

2013. As before, futures on the RTS index accounted for the largest number of transactions (Chart 4.4), whereas their share of the total volume of futures and options trades decreased from 53.4% in the second half of 2012 to 49.8% in the period under review. Interest in contracts on other stock indices (MICEX, RTS Standard, RTS sectoral indices and RTSVX) remained insignificant. The leaders in single stock futures on the Moscow Exchange in terms of volume were the futures contracts on the shares of Sberbank (882.7 billion roubles), Gazprom (477.8 billion roubles) and LUKOIL (194.7 billion roubles).

The rouble’s depreciation against world’s major currencies in 2013 Q2 contributed to higher demand for currency futures as instruments for hedging foreign exchange risk, as well as instruments for speculative and arbitrage transactions. As in the previous six-month period, the share of currency futures in the total volume of exchange trades in derivatives amounted to

The derivatives market


about 33%. The breakdown of the currency futures turnover by underlying reference was largely similar to the structure of the spot segment of the domestic foreign exchange market. Futures on the dollar/rouble exchange rate remained the most liquid currency contracts in the period under review and operations with euro/dollar futures increased considerably (Chart 4.5). Transactions with these currency pairs also dominated the spot FX market. The contracts on the US dollar/rouble exchange rate were comparable in terms of the value of open positions with the most liquid RTS index futures (Chart 4.6). Currency futures showed generally smaller trading volumes than stock futures so far but matched them by the volume of open positions in contracts (Table 4.1 and Table 4.2).

Operations with currency futures on the St Petersburg Exchange increased significantly in the first half of 2013.

The dynamics of futures prices in the main segments of the futures market (the stock and foreign

exchange segments) continued to be influenced by the dynamics of underlying asset prices in the period under review, following these trends with an insignificant lag. In January, in the period of the RTS index gradual growth, and then until mid-March, when the RTS index was mostly seen to decline, the prices of the most liquid futures contracts on the RTS index were in contango (were higher than spot prices). In April-June, when the RTS index was highly volatile, the prices of futures contracts moved into backwardation (were lower than spot prices) and the spreads between futures and spot prices widened considerably. These dynamics in the futures spreads pointed to the expectations of an upward price correction on the stock market in 2013 Q1 and the dominance of negative price expectations in 2013 Q2 (Chart 4.7). The spreads between the futures and spot prices of the most liquid foreign exchange contracts (on the US dollar/rouble exchange rate) were observed to narrow in the first half of 2013 but remained positive amid growth of the US dollar exchange rate against



the rouble. This could testify to FX market participants’ expectations of the US dollar’s moderate rise against the rouble (Chart 4.8).

Instability on world commodity markets caused a considerable growth of trade turnovers in the commodity futures segment (2.8% of the total volume of exchange trades in derivatives) (Table 4.1, Chart 4.9). A sharp fall in gold and silver prices (to the level of early 2008), which started in 2012 and continued until the end of the first half of 2013, prompted higher interest of Russian derivatives market participants in futures contracts on these assets. The demand of trading participants for oil futures also grew amid uncertainty over price expectations on the world oil market. The most liquid commodity futures in the first half of 2013 were contracts on gold (333.6 billion roubles) and Brent crude (327.4 billion roubles). Contracts on silver were also liquid enough (65.7 billion roubles).

The segment of interest rate futures continued its qualitative development in the first half of 2013

(Chart 4.10). While the share of these contracts in the total volume of exchange trades in derivatives remained insignificant (less than 1%), the Moscow Exchange continued to promote contracts on long-term interest rates (OFZ baskets) (Addendum, Table 6). In addition to trades in contracts on 2-year, 4-year, 6-year and 10-year OFZ baskets, the Moscow Exchange launched in June futures contracts on 15-year federal loan bonds. These contracts allow futures market participants to manage interest rate risk effectively and expand the potential of their operations on the debt market considerably. The most liquid interest rate futures in the first half of 2013 were contracts on the basket of 10-year OFZ bonds (43.2 billion roubles) while trades in new futures on the 15-year OFZ basket reached 12.2 billion roubles. Contracts on long-term interest rates edged out almost completely similar contracts on short-term rates (the MosPrime 3-month rate and the RUONIA overnight rate), which were used in transactions episodically.

The options market remained closely related to the futures market (options contracts are normally used in joint strategies with futures contracts on an underlying asset), which prompted similar dynamics of trade turnovers in the main segments of the futures and options markets. Operations with all types of options (stock, currency and commodity options) intensified in the first half of 2013, which was consistent with the dynamics of trades in the corresponding types of futures contracts (Table 4.1, Chart 4.11). The share of options in the total volume of exchange trades in derivatives increased to 7.3% in the period under review as against 6.6% in the previous six-month period. Similar to the futures market, options on the RTS index futures remained the most traded instrument on the options market (1.8 trillion roubles). The monthly volumes of call options exceeded those of put options on the RTS index futures in the first half of 2013 (Chart 4.12). Such a ratio of the volumes of operations with these types

The derivatives market


of options testified to the fact that the expectations of a short-term upward correction of Russian stock prices prevailed on the derivatives market during the period under review.

In the first half of 2013, Russian credit institutions continued their operations on the derivatives market: their portfolios of these instruments (exchange-traded and over-the-counter) expanded from 163.9 billion roubles as of January 1, 2013 to 189.1 billion roubles as of July 1, 2013. Banks played a significant role on the derivatives market: their share of the total trading volume on the Moscow Exchange was estimated at about 40% in the first half of 2013.

Thus, the volumes of transactions and open positions in most segments of the derivatives exchange market increased in the first half of 2013. The situation on the world commodity market was conducive to the development of the futures market’s commodity segment. A higher activity in operations with currency derivatives weakened the dominance of transactions

with RTS index futures on the market. Some increase in the maturities of futures contracts was a positive factor for derivatives trades. At the same time, the prevalence of short-term deals and, correspondingly, the limited presence of large hedgers continued.

* * *As before, the situation on the Russian derivatives

market in the second half of 2013 will be influenced by trends on the markets of underlying assets. The development of the market instruments also remains an important aspect. In June, the Moscow Exchange announced plans to launch jointly with Eurex Exchange (part of Deutsche Borse Group) futures contracts on the stocks of the largest German companies and banks (Deutsche Bank, Siemens, BMW, Volkswagen and Daimler) from September 2013. The launch of new contracts will ease Russian participants’ access to the futures on these stocks and expand their investment potential considerably.


Composite Sentiment Index for the Financial Market

The level of financial market stress (tension) is determined by the strength of exogenous and endogenous shocks and the extent of the market’s vulnerability to their impact. Fluctuations of market participants’ sentiments and preferences are an integral part of the mechanism responsible for the spread of market shocks and the development of destabilisation processes on the financial market.

To measure the level of stress on the Russian financial market, it is expedient to use the indicators of price expectations on the domestic and external markets of financial and non-financial assets1, which reflect individual components of financial instability. These indicators include the indicator of the yield curve slope of interest rate swaps2, implied volatility indices for the US dollar/rouble exchange rate3, world oil prices4, prices on the world5 and domestic stock markets6, and also the indicators of risk premiums of Russian financial instruments7 and the indices of risk aversion on the global capital market8.

Most of the above indicators are applied in quite narrow areas. Specifically, the indicator of the yield curve slope of interest rate swaps reflects price expectations on the interbank loan market, stock and oil price volatility indices - on the stock market and US dollar/rouble rate and oil price volatility indices - on the foreign exchange market. A more general view of investor attitude to risk is given by the indicators of country risk premiums and the aggregate indices of risk aversion on the global capital market but these characteristics are also not comprehensive. In particular, the global investor risk aversion indices fail to consider specific factors influencing the local financial market.

A comprehensive estimate of the state of the Russian financial market and its participants’ sentiments requires the use of the Composite Sentiment Index (CSI) based on the factor analysis (the method of common factor analysis).9 The CSI Index is a common factor for a combination of the seven above-mentioned financial and economic indicators10, explaining the maximum portion of the total variance. The linear transformation coefficient connecting the common factor and the CSI Index components is used with a positive sign. That is why, the CSI Index, like its components, responds with growth to the deterioration of the market situation. For a more accurate interpretation of the CSI Index results, we’ll set a threshold value equal to zero.11 The excess of the CSI Index over the threshold level can be interpreted as an early warning signal of higher tension on the financial market and vice versa.

Analysis of the CSI dynamics in April 2011–June 2013 revealed that the episodes of the deterioration in the main segments of the Russian financial market registered during this period (August-December 2011 and April-June 2012)

1 Here and below, analysis considers the indicators of price expectations used for modelling the Composite Sentiment Index for the Russian financial market.2 The spread between ROISfix reference interest rates (calculated by the National Foreign Exchange Association) on RUONIA interest rate swaps with maturities

of 6 months and 1 week.3 This index is calculated by Bloomberg, using 3-month exchange options on the US dollar/rouble futures.4 This index is calculated by Bloomberg, using 3-month exchange options on the Brent crude futures.5 The VIX index is calculated by the Chicago Board Options Exchange (CBOE), using implied volatilities of Standard & Poor’s 500 index options.6 The RTSVX index is calculated by the Moscow Exchange, using the methodology similar to the VIX index calculation.7 CDS-spreads on Russia’s sovereign 5-year foreign currency bonds are calculated by CMA company, which is part of the CME Group integrating the four major

exchanges in the US (CME, CBOT, NYMEX and COMEX).8 The MRICiti Index (Citi Macro Risk Index) is an indicator of global investor risk aversion. The index is the moving average of the levels of spreads between yields

on the sovereign Eurobonds of emerging market economies and US Treasuries, spreads between yields on US corporate bonds and US Treasuries, swap spreads, as well as the moving average of implied volatilities of exchange rates, stock prices and rates on interest rate swaps. The closer the MRICiti Index to 1, the higher investor risk aversion and vice versa.

9 The methods of factor analysis, which explains the structure of relationships among variables by their dependence on a smaller set of other uncorrelated and directly unmeasured common factors, are widely used in international practice for building financial stress indices, such as the Kansas City Financial Stress Index (KCFSI) and others.

10 The variables standardised through the normalisation procedure have the zero mean and the standard deviation equal to 1.11 The CSI Index comprises normalised variables and, consequently, is itself a normalised value with the zero mean.

Conclusion

strategies, reducing investments in highly risky assets and building up the share of fixed-income instruments (bonds, funds on bank accounts and deposits) in their investment portfolios. Specific quantitative indicators of the Russian financial market may remain volatile amid uncertainty over the prospects of global economic development and the persisting risks of a slower growth of the Russian economy in the second half of 2013.

In the first half of 2013, the Russian financial market remained resilient to the impacts of external commodity and financial markets, fluctuations in investor sentiments and their risk propensity (see the Box “Composite Sentiment Index for the Financial Market”). Persisting external and internal investment risks determined the low attractiveness of Russian financial assets for investment. Financial institutions and non-financial organisations mostly pursued conservative investment

Conclusion


coincided with the CSI Index excess over the threshold level. The comparison made for the same period between the CSI Index dynamics and one of its components - the country risk premium characterising the level of investment risk in Russia - showed that the CSI Index growth was observed to accelerate noticeably ahead of an increase in the risk premium, signalling with a little advance about rising financial instability.

The CSI Index downward dynamics in July 2012–the first half of May 2013 reflected improved sentiments on the Russian financial market related to stabilising price expectations of global capital market participants due to the implementation of the Fed’s third round of quantitative easing. However, the situation on the domestic financial market changed in the second half of May–June 2013: the market participants’ sentiments deteriorated sharply, the CSI Index registered a reversal in its dynamics and by the end of June it came almost close to the zero threshold level but did not exceed it. The CSI Index growth was somewhat slower than the growth registered in the periods of a considerable deterioration on the market before, which may testify to the absence of explicit signals of a further increase in tension on the Russian financial market.


Addendum

Table 1

Russian capital market (as of the end of the period, billions of roubles)

Segment 2004 2005 2006 2007 2008 2009 2010 2011 2012The first half of 2013

1. Bank loans to non-financial organisations and households (outstanding) 3,886 5,453 8,031 12,287 16,527 16,115 18,148 23,266 27,708 29,828

Of which:

– loans to non-financial organisations 3,348 4,397 6,148 9,316 12,510 12,542 14,063 17,715 19,971 21,030

– loans to households 538 1,056 1,883 2,971 4,017 3,574 4,085 5,551 7,737 8,798

2. Non-government securities (outstanding volume) 8,459 15,939 28,784 37,111 16,748 29,486 37,434 33,759 34,912 35,148

2.1. Debt securities (except bonds) issued by banks 609 676 840 856 772 769 811 866 1,353 1,499

Of which:

– certificates of deposit 99 55 33 30 12 19 15 13 4 4

– savings certificates 4 7 16 21 16 14 12 10 224 295

– promissory notes and bank acceptances 506 615 790 806 743 735 783 843 1125 1,199

2.2. Equity market capitalisation 6,867 13,549 25,315 32,617 11,017 23,091 30,189 25,708 24,812 23,312

2.3. Corporate bonds in circulation on the domestic market 263 481 906 1,272 1,815 2,569 2,965 3,437 4,166 4,631

2.4. Corporate Eurobonds 628 1,167 1,663 2,315 3,049 3,006 3,416 3,716 4,523 5,663

– billions of US dollars 22.6 40.5 63.1 94.3 103.8 99.4 112.1 115.4 148.9 173.1

2.5. Non-bank promissory notes of residents (except government bodies) discounted by banks 91 65 61 51 94 52 53 33 58 44

3. Government securities (outstanding volume, at par) 1,894 2,020 2,051 2,092 2,330 2,743 3,491 4,209 4748 4,8813.1. Government (federal) bonds denominated in roubles (GKO-OFZ,

OVOZ) 558 722 876 1,047 1,144 1,470 2,054 2,893 3,287 3,350

3.2. Government (federal) bonds denominated in foreign currency 1,179 1,111 969 812 867 847 982 940 1,060 1,121

Of which:

– Eurobonds of the Russian Federation, billions of US dollars 35.3 31.5 31.9 28.6 27.7 26.2 30.5 29.2 34.9 34.3

– OVGVZ and OGVZ, billions of US dollars 7.1 7.1 4.9 4.5 1.8 1.8 1.8 0.02 0.01 0.01

3.3. Sub-federal and municipal bonds denominated in roubles and foreign currency 158 187 207 233 318 426 454 375 400 409

Total for capital market 14,239 23,412 38,865 51,490 35,604 48,344 59,072 61,234 67,368 69,857

Memo item:

Nominal GDP 17,027 21,610 26,917 33,248 41,277 38,807 46,309 55,800 62,599 65,2031

Capital market depth to GDP ratio, % 84 108 144 155 86 125 128 110 108 107

1 Estimate by the Bank of Russia Research and Information Department. Source: The Bank of Russia, the Finance Ministry, the FFMS, Rosstat, the Moscow Exchange, Cbonds.ru, calculations made by the Bank of Russia Research and Information Department.

Addendum


Table 2 Parameters and results of OFZ auctions held

in the first half of 2013

Auction dateSecurity

registered number

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

Cut-off price, % of par value

Average-weighted

price, % of par value

Cut-off yield, % p.a.

Average-weighted

yield, % p.a.

Premium (+) / discount (-) to bond issue yield

on the secondary market, bp

16.01.13 26211 25.0 10.0 25.01.23 19.075 18.546 6.760 6.936 102.56 102.61 6.75 6.75 -

23.01.13 26210 35.0 6.9 11.12.19 133.628 136.514 35.000 36.009 102.18 102.23 6.51 6.50 3

23.01.13 26212 15.0 15.0 19.01.28 14.961 14.997 10.454 10.530 100.61 100.72 7.10 7.09 -

30.01.13 26208 7.3 6.1 27.02.19 3.307 3.594 1.044 1.142 106.36 106.41 6.32 6.31 -3

30.01.13 26211 20.0 10.0 25.01.23 44.605 45.574 18.002 18.518 102.55 102.60 6.75 6.75 2

6.02.13 26212 10.0 15.0 19.01.28 25.480 25.547 10.000 10.094 100.30 100.67 7.14 7.10 -1

6.02.13 25081 20.0 5.0 31.01.18 27.053 27.013 13.551 13.565 99.97 100.11 6.30 6.27 -

13.02.13 26211 25.0 10.0 25.01.23 17.050 17.408 10.697 10.977 102.05 102.08 6.82 6.82 3

20.02.13 26210 30.0 6.8 11.12.19 71.350 72.928 30.000 30.924 101.87 101.91 6.56 6.55 2

27.02.13 25081 26.4 4.9 31.01.18 14.537 14.618 12.235 12.329 100.37 100.41 6.20 6.20 4

6.03.13 26211 25.0 9.9 25.01.23 23.812 23.937 15.276 15.598 101.13 101.17 6.95 6.95 4

13.03.13 26209 8.4 9.4 20.07.22 4.952 5.235 1.894 2.020 105.75 105.77 6.87 6.87 0

13.03.13 25081 4.2 4.9 31.01.18 13.300 13.408 4.214 4.251 100.23 100.29 6.24 6.22 -4

20.03.13 26208 6.2 5.9 27.02.19 28.240 29.646 6.221 6.560 105.14 105.16 6.55 6.55 -1

27.03.13 26207 9.9 13.9 3.02.27 21.783 23.309 9.916 10.747 107.43 107.60 7.42 7.40 1

27.03.13 26209 6.5 9.3 20.07.22 7.677 7.855 2.646 2.797 104.51 104.54 7.05 7.05 2

3.04.13 26211 10.0 9.8 25.01.23 13.219 13.400 10.000 10.146 99.89 99.98 7.13 7.12 2

3.04.13 25081 20.0 4.8 31.01.18 11.152 11.214 7.646 7.709 99.80 99.87 6.34 6.33 5

10.04.13 26210 10.0 6.7 11.12.19 64.142 66.529 10.000 10.473 102.64 102.64 6.41 6.41 -8

10.04.13 26212 25.0 14.8 19.01.28 99.330 100.086 25.000 25.491 100.36 100.48 7.13 7.12 2

17.04.13 26211 20.0 9.8 25.01.23 93.450 95.469 20.000 20.606 101.18 101.28 6.95 6.93 -4

17.04.13 25081 10.0 4.8 31.01.18 10.449 10.595 10.000 10.141 100.16 100.22 6.25 6.24 1

24.04.13 26210 20.0 6.6 11.12.19 85.202 88.600 20.000 21.080 102.93 103.05 6.35 6.33 -3

24.04.13 26212 20.0 14.7 19.01.28 75.530 76.715 20.000 20.619 101.17 101.34 7.04 7.02 -4

15.05.13 26211 30.0 9.7 25.01.23 113.479 118.222 29.157 30.780 103.19 103.28 6.65 6.64 4

15.05.13 25081 10.0 4.7 31.01.18 32.959 33.552 10.000 10.204 100.33 100.38 6.21 6.20 6

29.05.13 25081 20.0 4.7 31.01.18 0.934 0.950 0.934 0.950 99.73 99.78 6.36 6.35 5

19.06.13 25082 10.0 3.0 10.05.16 41.533 40.893 10.000 9.972 99.14 99.14 6.43 6.43 -Source: The Finance Ministry, the Moscow Exchange, calculations made by the Bank of Russia Research and Information Department.



Table 3 Characteristics of corporate bond issues placed on the domestic market in January-June 2013

Type of issuer’s economic activity

Issuer Date of

placement commencement

Redemption date Placement volume at par,

billions of roubles1

First coupon rate, % p.a.

Placement site

Aviation

Aeroflot 4.04.2013 31.03.2016 5.0 8.30

Moscow Exchange

UTair-Finance21.06.2013 17.06.2016 1.5 12.0021.06.2013 17.06.2016 1.5 12.0021.06.2013 17.06.2016 1.5 12.00

Mining Metalloinvest Holding Company 8.02.2013 27.01.2023 5.0 8.908.02.2013 27.01.2023 5.0 8.90

Credit institutions

Asian-Pacific Bank 19.02.2013 19.02.2016 3.0 10.40Bank IBA-Moscow 20.06.2013 23.06.2016 3.0 10.75Zapsibcombank 28.02.2013 25.02.2016 2.0 11.50NOTA-Bank 5.04.2013 1.04.2016 2.0 11.75TCB 11.06.2013 30.05.2023 2.0 9.70Absolut Bank 28.05.2013 28.05.2018 5.0 9.25

VTB 2423.05.2013 1.09.2044 4.0 9.0023.05.2013 1.09.2044 2.0 3.00

Russian Standard Bank27.02.2013 27.02.2016 3.0 9.8027.02.2013 27.02.2016 3.0 10.00

DeltaCredit CB 2.04.2013 2.04.2016 5.0 8.50

Credit Europe Bank19.04.2013 19.04.2016 5.0 9.4019.02.2013 19.02.2016 5.0 9.60

Novikombank 8.04.2013 8.04.2016 3.0 9.85

UniCredit Bank

26.02.2013 23.02.2016 5.0 8.1526.02.2013 23.02.2016 5.0 8.1514.02.2013 11.02.2016 5.0 8.6014.02.2013 11.02.2016 5.0 8.60

CB LOCKO-Bank 14.02.2013 11.02.2016 4.0 10.40SDM-Bank 1.03.2013 1.03.2016 1.5 12.40Morskoy Bank 6.03.2013 9.03.2016 1.5 12.75Tatfondbank JSICB 8.02.2013 5.02.2016 2.0 12.75AK BARS Bank 20.03.2013 16.03.2016 5.0 9.20Alfa-Bank 26.02.2013 26.02.2016 5.0 8.65Bank of Moscow 31.01.2013 28.01.2016 10.0 8.05Krayinvestbank 26.04.2013 26.04.2016 1.5 11.35Credit Bank of Moscow 27.02.2013 22.08.2018 2.0 12.25Russian Agricultural Bank 23.04.2013 11.04.2023 10.0 7.99UBRD 19.04.2013 10.04.2020 2.0 11.15Avangard JSCB 4.02.2013 1.02.2016 1.5 9.75International Financial Club JSCB 26.04.2013 26.04.2016 1.5 11.00

Rosbank

15.01.2013 15.01.2016 1.3 0.014.04.2013 4.04.2016 3.0 0.011.03.2013 1.03.2016 10.0 8.5531.01.2013 31.01.2016 5.0 8.8030.01.2013 30.01.2016 5.0 8.80

Sviaz-Bank 29.04.2013 29.04.2016 5.0 8.60

VTB Bank19.02.2013 16.02.2016 15.0 7.9022.01.2013 19.01.2016 15.0 8.15

Bank ZENIT 5.06.2013 30.05.2018 5.0 8.60CB Vostochny 14.02.2013 9.08.2018 4.5 13.60

CB Centre-Invest27.03.2013 23.03.2016 1.5 10.2527.03.2013 23.03.2016 1.0 10.25

Vneshprombank 28.06.2013 22.06.2018 3.0 11.25Rusfinance Bank 24.04.2013 24.04.2018 4.0 8.30HCF Bank 27.02.2013 24.02.2016 3.0 9.40Expobank 25.06.2013 3.07.2016 1.5 11.50Sovcombank 18.06.2013 20.06.2016 2.0 11.25

Addendum



Issuer Date of





Placement site

Credit institutionsSvyaznoy Bank 14.06.2013 8.06.2018 2.0 12.50

Moscow Exchange

TCS Bank 28.05.2013 24.05.2016 3.0 10.25

Machine-building Hydromashservice 5.02.2013 30.01.2018 3.0 10.10Arsenal Machine-Building Plant 3.06.2013 30.05.2016 0.03 14.00OPK Oboronprom 17.04.2013 17.04.2023 2.6 8.80

Metallurgy

MMC Norilsk Nickel28.02.2013 25.02.2016 10.0 7.9028.02.2013 25.02.2016 10.0 7.9028.02.2013 25.02.2016 15.0 7.90

Chelyabinsk Pipe Rolling Plant26.02.2013 25.02.2014 2.0 6.0026.02.2013 24.02.2015 5.0 8.0026.02.2013 25.08.2015 1.2 10.00

Oil and gas

Rosneft

11.06.2013 30.05.2023 10.0 7.9511.06.2013 30.05.2023 15.0 7.9511.06.2013 30.05.2023 15.0 7.9522.03.2013 10.03.2023 15.0 8.0022.03.2013 10.03.2023 15.0 8.00

Bashneft

12.02.2013 31.01.2023 10.0 8.6512.02.2013 31.01.2023 5.0 8.6512.02.2013 31.01.2023 10.0 8.8512.02.2013 31.01.2023 5.0 8.85

Food industry

Mikoyan Meat Processing Plant 1.02.2013 29.01.2016 2.0 12.50Cherkizovo Group 16.04.2013 12.04.2016 3.0 9.75Miratorg Finance 23.04.2013 19.04.2016 5.0 11.25United Confectioners – Finance 15.04.2013 3.04.2023 1.7 10.50

Construction industry

Mordovcement 13.06.2013 9.06.2016 2.5 12.25Verkhnebakansky Cement Plant 14.05.2013 4.05.2021 3.6 13.00LSR Group 10.04.2013 6.04.2016 3.0 10.15Southern Urals Corporation for Housing Construction and Mortgage (SUCHCM)

26.02.2013 23.02.2016 2.5 10.00

EFESk Group 18.06.2013 14.06.2016 0.2 13.25

SU-155 Capital 26.02.2013 23.02.2016 1.0 13.2526.02.2013 23.02.2016 1.0 13.2526.02.2013 23.02.2016 1.0 13.25

Communications

MTS 3.04.2013 22.03.2023 10.0 8.25Nauka Svyz 16.05.2013 10.05.2018 0.4 14.00

Rostelecom

13.06.2013 7.06.2018 5.0 7.5012.03.2013 6.03.2018 10.0 8.1030.01.2013 24.01.2018 10.0 8.2030.01.2013 24.01.2018 5.0 8.20

MegaFon Finance13.03.2013 1.03.2023 10.0 8.0013.03.2013 1.03.2023 10.0 8.00

Retail trade

DOMO15.05.2013 11.05.2016 1.5 14.0015.05.2013 11.05.2016 1.0 14.00

Pharmacy Chain 36.6 25.06.2013 21.06.2016 1.0 14.00

Magnit 2.04.2013 29.03.2016 5.0 8.402.04.2013 29.03.2016 5.0 8.4026.02.2013 23.02.2016 5.0 8.50

Lenta5.03.2013 25.02.2020 4.0 10.0012.03.2013 3.03.2020 3.0 10.0012.03.2013 3.03.2020 3.0 10.00

Transport

Russian Helicopters 26.04.2013 20.04.2018 5.0 8.25

State Transport Leasing Company (STLC)29.01.2013 23.01.2018 5.0 10.001.02.2013 26.01.2018 5.0 10.00

FESCO 4.06.2013 31.05.2016 5.0 10.25

Continued




Issuer Date of





Placement site

TransportRussian Railways

9.04.2013 21.03.2028 20.0 8.20

Moscow Exchange

5.06.2013 29.04.2043 25.0 8.2027.06.2013 8.06.2028 25.0 8.40

TransContainer 1.02.2013 26.01.2018 5.0 8.35Russian Helicopters 26.04.2013 20.04.2018 10.0 8.25

Financial companies

Europlan2.04.2013 26.03.2019 1.5 10.2227.02.2013 20.02.2019 1.5 10.42

Mortgage Agent Absolut 129.03.2013 12.11.2040 2.7 - OTC market29.03.2013 12.11.2040 9.6 9.20 Moscow Exchange

Mortgage Agent Vozrozhdenie 2 2.04.2013 25.08.2045 1.0 4.21OTC market

Mortgage Agent PSB 201328.06.2013 9.02.2040 0.6 -28.06.2013 9.02.2040 2.5 8.50 Moscow Exchange

Mortgage Agent Raiffeisen 0121.06.2013 20.06.2040 0.9 - OTC market21.06.2013 20.06.2040 4.1 7.85

Moscow Exchange

Mortgage Agent Fora 5.03.2013 5.06.2045 0.9 8.75Mortgage Agent Vozrozhdenie 2 2.04.2013 25.08.2045 3.0 8.50KIT Finance Capital 3.04.2013 29.03.2017 1.5 9.00

AHML 29.04.2013 1.10.2026 6.0 7.7513.06.2013 1.11.2032 4.0 6.6525.06.2013 1.11.2029 6.0 6.65

VEB-Leasing 10.06.2013 4.06.2018 3.2 4.00IFC RFA-Invest 27.02.2013 24.02.2016 1.4 12.00National Capital 22.03.2013 18.03.2016 3.0 11.50RTC-Leasing 7.06.2013 1.06.2018 2.0 12.75

VEB-Leasing

10.06.2013 4.06.2018 3.2 4.0010.06.2013 4.06.2018 3.2 4.0010.06.2013 4.06.2018 3.2 4.007.03.2013 1.03.2018 5.0 8.507.03.2013 1.03.2018 5.0 8.50

Otkritie FC 14.05.2013 8.05.2018 5.0 12.00Alfa Ukrfinance 7.06.2013 3.06.2016 3.0 13.50

Gazprom Capital21.02.2013 18.02.2016 15.0 7.5021.02.2013 15.02.2018 5.0 7.5521.02.2013 16.02.2017 10.0 7.55

Zhilstroy 20.03.2013 14.03.2018 0.5 8.25 OTC marketSITMAR Investment Company 27.02.2013 20.02.2019 0.3 12.65

Moscow Exchange

Carcade 29.04.2013 25.04.2016 1.5 12.50

Uralsib Leasing Company28.03.2013 21.03.2019 3.0 10.2525.04.2013 21.04.2016 2.0 11.00

RESO-Leasing 20.02.2013 17.02.2016 2.5 10.00RESO-Garantia 5.04.2013 24.03.2023 3.0 9.20

Power engineering

Lenenergo 17.04.2013 13.04.2016 3.0 8.25MOESK 13.02.2013 10.02.2016 5.0 8.50IDGC of Urals 31.01.2013 28.01.2016 3.0 8.40

RusHydro 14.02.2013 2.02.2023 10.0 8.5014.02.2013 2.02.2023 10.0 8.50

FGC UES25.01.2013 7.01.2028 10.0 8.0010.06.2013 27.04.2048 10.0 8.4010.06.2013 27.04.2048 20.0 8.40

Other Rentek 13.05.2013 7.05.2018 0.5 8.25 OTC market

Total January-June of 2013

02.2014-04.2048 790.2 0.01-14.0

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

Source: The Moscow Exchange, Cbonds.ru.

End

Addendum


Table 4

Public offerings (IPOs and SPOs) in 2012-the first half of 20131

Issuer Date of placement completionVolume of funds raised, millions

of US dollarsExchange Type of placement

RusPetro Plc 20.01.2012 250 London Stock Exchange Primary

Abrau-Durso 11.04.2012 0.45 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

Multisistema 27.12.2012 3.2 Moscow Exchange

Total 2012 9,516.3

Moscow Exchange OJSC 15.02.2013 500.0 Moscow Exchange Primary

Yandex 13.03.2013 607.0 Nasdaq Stock Exchange Secondary

PhosAgro 9.04.2013 466.7 London Stock Exchange Secondary

QIWI plc 3.05.2013 212.5 Nasdaq Stock Exchange Primary

VTB Bank 24.05.2013 3,200.0 Moscow Exchange Secondary

PIK Group 7.06.2013 330.0 Moscow Exchange Secondary

Luxoft 26.06.2013 69.6 New York Stock Exchange Primary

Total The first half of 2013 5,385.71 The estimate is based on data provided by Cbonds.ru.



Table 6

A list of new futures contracts introduced for trading on the Moscow Exchange in the first half of 2013

Month Contract name Underlying reference Method of contract execution

June

Futures on Yandex ordinary shares Yandex N.V. Class A ordinary shares, ISIN NL0009805522

Settlement contractsUS dollar/Swiss franc futures US dollar/Swiss franc exchange rate

US dollar/Ukrainian hryvnya futures US dollar/Ukrainian hryvnya exchange rate

US dollar/Japanese yen futures US dollar/Japanese yen exchange rate

Futures on 15-year federal loan bonds

Federal loan bonds that meet the following criteria: the bonds are issued by the Finance Ministry; 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 two weeks before the first trading day; the period from the contract execution to the redemption date inclusive should be no less than 10 years and no more than 15 years; a decision on a bond issue does not stipulate the right of early repurchase or redemption by the issuer.

Deliverable contracts

Source: The Moscow Exchange.

Table 5

Sberbank interest rates on household deposits from January 2012 to June 2013 (as of the start of the period, % p.a.)

Period2012 2013

I-IX X-XII I-III IV-V VI

Deposit name Description roubles US

dollars euros roubles

US dollars

euros roubles US

dollars euros roubles

US dollars

roubles US

dollars

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

1.50-2.30

0.20-1.15

‘Save’ Deposit To earn maximum

income4.50-8.00

1.35-4.00

1.25-4.50

5.15-8.75

1.35-4.00

1.25-4.50

5.15-8.75

1.35-4.00

1.25-4.50

5.15-8.75

1.00-3.25

4.90-8.00

1.00-3.25

‘Add’ Deposit To accumulate savings

and earn income 4.35-7.25

1.35-3.75

1.25-4.25

5.10-8.00

1.35-3.75

1.25-4.25

5.10-8.00

1.35-3.75

1.25-4.25

5.10-8.00

1.10-3.00

4.85-7.25

1.10-3.00

‘Manage’ Deposit To earn income and use

part of the deposit 4.00-6.50

1.30-3.55

1.10-4.10

4.55-7.25

1.30-3.55

1.10-4.10

4.55-7.25

1.30-3.55

1.10-4.10

4.55-7.25

1.00-2.80

4.05-6.50

1.00-2.80

‘Gift of Life’ DepositTo earn income and take part in a charity

programme 7.25 - - 8.00 - - 8.00 - - 8.00 - 7.25 -

‘Sberbank Multicurrency

Deposit’

To earn income in the form of interest on

deposit and additional income from currency

fluctuations

0.01-6.15

0.01-3.40

0.01-3.75

0.01-6.80

0.01-3.40

0.01-3.75

0.01-6.80

0.01-3.40

0.01-3.75

0.01-6.80

0.01-2.70

0.01-6.10

0.01-2.70

Source: Sberbank.

Financial Market Review, Issue No. 75, 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, Ye.N. Krivonenkova, Ye.G. Melnikova, I.L. Merkuryev, O.V. Kovalenko).

Section 3.5 has been compiled using material provided by the General Economic Department (N.Yu. Ivanova – Deputy Governor, Director of the Department, Ye.V. Prokunina – Deputy Director of the Department, Z.I. Merkulova – Head of the Division, G.N. Tretyakova, N.K. Bogacheva).

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

The Research and Information Department

Documents

The First Half of 2013