Russian Banks Caution That The CBDC Will Raise Loan Rates

Uwagwu Bennett
Uwagwu Bennett Published on September 16, 2023 12:00 AM

A significant Russian banking association has issued a warning that as banks struggle to deal with the soon-to-be-issued CBDC, the digital ruble will raise loan rates.

Russian Banks Caution That The CBDC Will Raise Loan Rates
Source: Pexels

In collaboration with 13 commercial banks, the Central Bank began a "real-world" central bank digital currency (CBDC) test last month in 11 cities.

However, banking institutions have previously voiced "concern" about the scheme, and the Central Bank was shocked by the heavyweight withdrawals of Sberbank and Tinkoff Bank at the last minute.

CBDC Might Increase Lending Rates

Alexey Voylukov, vice president of the Association of Banks of Russia, reportedly told Izvestia that the CBDC initiative might result in a 0.5% increase in lending rates.

He said:

“If we take into account the direct and indirect costs of introducing the digital ruble, the cost of money for lending will climb even higher.”

The remarks follow the association's letter to the Central Bank, which was written with "a request to clarify certain issues pertaining to the digital ruble." 

According to the association, many were "wary" about the currency.

Meanwhile, business executives have also voiced their concerns. Izvestia also consulted with additional specialists, who shared similar cautions.

According to Georgy Vashchenko, the analytical department's deputy director at Freedom Finance Global, banks might be penalized for more than $31 billion.

According to Vashchenko, "risk of banks losing about 5% per year in profits."

Yevgeniy Kogan, an investment banker and professor at the Higher School of Economics at National Research University, reiterated these ideas.

Kogan said:

“The head of the State Duma’s [Financial Markets] Committee, Anatoly Aksakov, has stated that as the CBDC is introduced, the Russian banking system will gradually fade away. It’s interesting to note that, just recently, the Central Bank assured the sector that this would not happen.”

A Rosbank executive opined:

“The main concern that financial institutions and Russian banks have is that a chunk of their assets will flow out of the banking system into to digital ruble wallets.”

Threat to the Russian Banking Sector from CBDC?

Other experts concurred that any extra revenue commercial banks would generate from handling CBDC transactions would probably pale in comparison to the losses caused by the digital ruble.

Others, however, felt that the risks associated with CBDC issuance had been overblown.

According to Timur Nigmatullin, a senior investment adviser at Finam Financial Group, it is evident from China's experience that Russian banks are currently safe.

Nigmatullin pointed out that despite the pilot starting in early 2020, Chinese state organs were just now starting to pay their personnel in digital yuan tokens.

As such, he stated,

“It is unlikely that, at least in the near future, the digital ruble will become a significant factor for the [Russian] banking system.”

Russia's Central Bank Raises Interest Rates Dramatically In An Effort To Support The Weakening Currency

In an effort to combat inflation and support the ruble after the value of the currency dropped to its lowest level since the beginning of the conflict with Ukraine, Russia's central bank increased interest rates significantly on Tuesday.

Since the beginning of the year, the value of the ruble has decreased by more than a third as a result of Moscow's increased military spending and the impact of Western sanctions on its ability to export energy. According to economists who research Russia, the country's economy is not in freefall despite issues including rising prices for consumers and businesses and a faltering ruble.

With a lower exchange rate, Moscow can convert more dollars from the sale of oil and gas into rubles, which it can then use to fund government operations and pay pensions. However, the value decline went a little too far, and officials are now tightening it up, according to analysts.

Although sanctions will eventually slow long-term economic growth, Chris Weafer, CEO of Macro-Advisory Partners, argued that the recent depreciation of the currency "does not imply an underlying economic crisis" or that Russia is ready to plunge off a cliff.




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