Russian Union of Industrialists and Entrepreneurs and banks’ representatives appeal to the Central Bank of Russia and the government to expand functions of the National Clearing Center. Having faced delay and freeze of payments on behalf of the Western banks, Russian financial experts initiate localization of interbank foreign exchange settlements in Russia. In that case decrease of dependence of Russian enterprises on Western foreign exchange settlement is apparent, but the Central Bank of Russia is yet cautiously considering that idea.
Russian bankers pin high hopes on a round-table discussion “Foreign exchange payments amid sanctions” of Russian Union of Industrialists and Entrepreneurs that took place today. They spoke out in favor of creation of Russia’s own system of cashless payments for goods and services (clearing) with regard to export and import transactions in order to protect themselves from possible upcoming sanctions of banks of the US and Europe, which now process the lion’s share of payments. That is why an offer will be sent to the government, Ministry of Finance and the Central Bank, to create on the basis of the National Clearing Center an autonomous system of foreign exchange settlements between banks, and later on – between customers as well. As of now National Clearing Center acts as a payer, but only in relation to stock exchange transactions, borrowing money from banks and giving it to the seller. However, it does not participate in direct foreign trade transactions.
Banks are concerned about corporate debts
It is not a coincidence that bankers have raised that issue now, when everyone became concerned about economical rating of the country, decrease of which will also affect Russian banks abroad. As the oil price is plummeting from $110 to nearly $82 per barrel, so is the country’s foreign currency income. Growth of the corporate debt does not improve things either. According to the Central Bank, it makes up about $700 billion already, 100 billion of which are due by the enterprises next year. According to the poll, carried out by the Russian Union of Industrialists and Entrepreneurs among heads of over 400 companies, 71.5% of which perceived a negative impact of sanction of the US and Europe against Russia, 21.4% did not perceive any changes whereas 7.1% have yet no idea what is going on to start with.
“Our foreign debt has already exceeded our gold reserves ($500 billion – editor’s note) and 45% of GDP, — says Alexander Murichev, Executive Vice President of the Russian Union of Industrialists and Entrepreneurs. — There is no imminent danger yet, some are buoyed by replacing imported goods with domestic ones, but this program will allow us to replace around 20% of import technologies and dual-use goods in as long as 3 years. In order to make it work one should know what to do next as enterprises and banks are deprived of the Western money while interbank payments slow down or get frozen altogether”.
Overall negative economic situation is complicated by limitation of access for Russian companies to Western capital markets, one of the outcomes of which became a stagnation or even cancellation of international payments with Europe and the US.
Foreign payments on the decline
Bankers have noted with unease that international payments had plummeted last week. Russian counterparties are presented with more and more strict requirements, clearing centers of the US started specifying payments and requesting to fill out new reporting forms, which leads to delayed payments of export and import transactions. However, some have managed to prepare for that situation.
For instance, back in early Spring Novikombank, a head enterprise and co-founder of which is a sanctioned Rostekh, started to receive signals from the US banks regarding upcoming settlement complications. To be on the safe side, the bank set up its own clearing system in the form of branching system of interbank relationship. (It is a common knowledge that enterprises tend to have accounts in the same bank to avoid involvement of third party banks. Since a great deal of export and import transactions are in USD, accounts are normally opened in the US banks). Novikombank opened about 500 nostro accounts (its own accounts – in foreign banks) and about 160 loro accounts (in Novikombank – for foreign banks). On top of that they included major banks of almost all CIS countries and switched to the national currency payments with some of them. That has ultimately allowed them to reduce dependence on USD and clearing centers of the US and Europe.
“We propose the Central Bank to set up an autonomous settlement network on the basis of the National Clearing Center of Russia, especially given that the necessary infrastructure is already there and all our major banks have an extensive account network in many countries”, — says Elena Shirinskaya, Deputy of the Chairman of the Board of Novikombank. — All Russian and CIS banks could connect via them to the clearing settlement system. Thus, the National Clearing Center could protect exporters and importers”.
The main point is to carry over settlements with Western banks to the Russian platform and work with them using loro accounts, including those of the major Russian banks. As was clarified by Shirinskaya, today foreign transactions even between Russian banks are processed vie the US or European ones.
“It is impossible to avoid the US banks with or without the National Clearing Center, — says Shirinskaya. — But it will be a considerable lump sum payment to the foreign currency account of the National Clearing Center, from which we would be able to make dozens of payments to other recipient banks with no delay.”
CJSC National Clearing Center (hereinafter — NCC) is a subsidiary of the Moscow Exchange Group, executing functions of the clearing organization and the central counterparty on the financial market. Starting December 2007 NCC carries out clearing on the foreign currency exchange market, starting November 2011 – stock market, and starting December 2012 – derivatives market. As a central agent NCC undertakes risks regarding deals closed between the participants during the stock trading, acting as an intermediary between the parties: seller for each buyer and buyer for each seller, contractual relationship of which is replaced with corresponding contractual obligations with the central counterparty.
Who will take the risks?
However, this idea did not impress the Central Bank. According to Sergey Moiseev, Director for Stability of the Bank of Russia, organization of settlements via NCC will hardly resolve the payment delay issue.
“Western banks will ask them to do the same thing they ask you to do now, — says Sergey Moiseev. — NCC will have to hold accounts in the same old Morgan Stanley, Bank of New York, and others. It executes a finance stabilization function, and you want to combine it with the settlement one — who then will take all the risks to a third party bank? All risks will converge in NCC. Moreover, for its payment balance to inflate additional capitalization is needed. Are large banks ready to contribute their capital to NCC or will they simply blame it all on someone else? And then again, it is not a closed conference we got here, it will be in mass media, which means Western banks will realize that we are up to some bypass tricks and will take countermeasures. Is that what you really want?”
NCC itself is not thrilled with the idea either. Due to the delay of payments between the banks, it has already accumulated about a trillion of Rubles in its treasury accounts (normal operating turnover is several hundreds of milliards). However, according to Alexander Murichev liberalization of NCC clearing transactions would allow us to make use of this money and expedite bank payments. In the long run settlements between the customers may also be taken into account.
“It is not yet clear what the talk is all about. Such schemes should be worked out in every detail, — says Alexander Karpovich, Head of the Settlement Management of the Lanta Bank. — Attribution of interbank settlements function to NCC will make a good backup option for domestic Russian banks. Whereas I believe it is unreasonable to involve it in the customer payment system. On top of it, what will we do if all of a sudden there are sanctions imposed on NCC as well?”
Besides, NCC refers to the lack of personnel for clearing transactions, absence of software and hardware.
“We agree that in general the Central Bank chose the right strategy to stabilization of the financial system and that may be in better times it would be better to leave everything as it is, — objects Elena Shirinskaya. — But right now it is crucial to take action: in order not to exacerbate an economic recession and effect of sanctions by virtue of payment delay, some bold action is needed. Surely, it will take some political will, while additional capitalization of NCC and supply of personnel, office equipment and software – are quite feasible technical tasks”.
Chinese response to the Western clearing
As such, Russian bankers are currently proposing financial authorities and regulatory agency to follow the suit of China, which has already created a sovereign clearing system on the basis of the largest bank of China – Industrial and Commercial Bank of China. It operates 36 major Chinese banks and largest banks of 42 countries. Clearing center is the kernel, which unlike Russian one not only makes treasury settlements and ensures stock transactions, but also effects transaction payments of the companies via banks. A total number of system members amounts to 469, settlements are made in 8 main currencies of the developed countries. Typical functions of the clearing center are: opening of foreign currency accounts and their block in other banks (in order to ensure payments security), opening of credit lines, collation of payments, transaction investigation, informing, etc. Just like the US banks, this bank applies real time gross settlements.
“I assume that Russian banks and even banks with foreign capital could well connect to the Russian clearing system comparable to the Chinese one, — says Igor Titlin, Deputy of the Board of Directors of ICBC Moscow (Industrial and Commercial Bank of China in Moscow). — It is clear that ever since we started working with the US banks using foreign currency accounts back in the 90s we continued to do it because of the gathered momentum. But who knew that the world would change so much. The settlement system has now become a matter of the national security. Take our Russian branch – it is not sanctioned, but it can’t take out a syndicated loan from J.P. Morgan either”.
Sergey Moiseev acknowledged China’s experience as worth paying attention to, but he remarked that their clearing system is mostly aimed at foreign trade and almost all its members have their accounts in Western banks, just like many our people do now. So, he doesn’t see the point in changing anything.
“But our banks could find a way out by converting foreign currency payments into Ruble payments, the only trouble is to persuade the customers to do that”, — says Moiseev.
However, bankers remarked that amid the Ruble devaluation hardly anybody will show such patriotism, today entering into international contracts in Ruble means have no control over the contract price, even Belorussian companies don’t take such a risk.
A la SWIFT with new options
Andrey Gribov, CEO of the Russian company CJSC CyberPlat also appealed to the national security. They developed their own platform of financial message transfer CyberFT – counterpart of the international SWIFT, and he proposes to launch it along with creating of the Russian clearing system. In order not to spook anybody it is suggested to explore CyberFT not instead of SWIFT, but parallel to it.
“When SWIFT was being developed and we were all connecting to it, it didn’t occur to anybody that it would ultimately become a world monopoly, — says Andrei Gribov. — Moreover, every now and then Europe is threatening to disconnect us from it. And although they said time and again that won’t happen, we’re well aware of the Iran experience, which was disconnected from SWIFT after all. And it is a good thing that the Central Bank began to consider ditching that monopoly in the long run”.
According to Andrey Gribov, CyberFT is as good as its Western counterpart, in certain aspects it even surpasses it. First off, the platform doesn’t charge the registration fee (SWIFT charges $53,000 and more), secondly, it supports not 10, but 20 protocol categories; thirdly, it ensures not only financial data transfer, but also clearing itself.
Vasily Zabolotsky, President of the National Foreign Exchange Association, reminded bankers and financial experts that the Central Bank, conservative as it may be, nonetheless eagerly meets the market players halfway in difficult situations.
“We didn’t intend to limit the foreign exchange swap when we were entering the Central Bank – and the Central Bank made a prompt response thus managing to avoid the foreign exchange deficit. The National Payment System law has already been ratified, the discussion regarding replacement of SWIFT is underway, — looks on the bright side Zabolotsky. — And I think that clearing system is a quite feasible thing to set up. Surely, National Clearing Center is a stock structure, but it will be quite possible to bring this to life once major banks and political will come into play”.
Request of the entrepreneurial and bank community with consideration of remarks will be prepared by the Russian Union of Industrialists and Entrepreneurs in days to come, after which the government will have to give thought to it as well. Several dozens of banks, private ones for the most part, are ready to endorse the document. Stance of major state banks is yet unknown.