1112020 Rouble settlements for international banks Practical Aspects

11/1/2020 Rouble settlements for international banks Practical Aspects Julia Sergeeva Payments and Cash Management ING BANK (EURASIA) ZAO April 2011

Agenda - Overview - RUB Settlements issues - Liquidity Management Issues - RTGS : current status and specifics - Summary 11/1/2020 1

Overview 11/1/2020 Market participants Counterparts International brokers Top 30 Russian banks Off-shore market Subsidiaries of foreign banks in Russia FX spot, FX swaps, XCY swaps, IRS, OIS Rouble funding Top Russian banks and foreign subsidiaries (overnight 3 -3. 5%, MM up to 3 months) Foreign banks – limited direct access to local funding Current issue - Lack of local ISDA Trading and Settlements volumes substantially increased Forecasted increase in volumes in 2011 vs. 2010 Turnover of ING Moscow vs foreign banks around 20 milliards RUB per day Mostly traded instrument FX spot, FX swaps, RUB bonds, REPO, derivatives Volumes are based on ING Commercial Banking activity on Russian market 2

RUB Settlements Issues 11/1/2020 • Account opening procedure is rather tough Collecting of documents set Tax registration Accounts opening (from 3 months up to 1 year) (up to 1 week) (1 -2 days) Correspondent bank • • Russian Tax Authorities Clearing provider Special format of RUB payments, including obligatory special (VO) codes for currency control purposes Manual intervention in RUB payment processing Payment processing for Moscow region • Main principles - Payments with early CBR shift Extended cut-off times for same day value settlement Intraday overdraft facility Understanding of Currency control rules 3

Liquidity Management Issues 11/1/2020 • Majority of commercial and interbank payments are processed with the 4 th and the 5 th batches when interbank currency market is already inactive • Wide variety of bank internal crediting procedures – from crediting all 5 batches with the same value to crediting all 5 batches with next business day value CBR does not pay interest on an overnight credit balance on the correspondent account of a local bank • • CBR offers secured overnight loans, backed with certain government debt securities, however, the interest rate (re-financing rate) is relatively high at the moment: 8. 00% (as of February 28, 2011) • • • Generally no distinction between high/low value & urgent/non-urgent payments • Necessary limits and documentation shall be in place (either Master Agreement or ISDA) to start interbank FX trading Overdraft facility for non-resident banks Ø available upon signing of the special agreement; Ø limits imposed onto local banks offering overdrafts via risk management requirements of CBR. No true cash pooling and sweeping facilities • • Cover payments are not possible for RUB as it contradicts Russian legislation No back value allowed, while the fine for non-delivery of RUB funds (for interbank payments) is usually as high as a double re-financing rate 4

RTGS : current status and specifics Current status § § § The main liquidity is still concentrated in the Batch-Based System (BBS) Mostly used for early payments to MICEX Settlement House Since August 2010 all domestic Banks are joined to RTGS system Currently used by about 3045 credit organizations (including its branches) Volume represents approximately 25% of the total RUB payment settlements No interest in using RTGS System 11/1/2020 Specifics of RTGS in Russia • • Meant specifically for low-volume high-value payments Not duly harmonized with the currently used CBR BBS Labour-intensive and time-consuming payment processing Non-compatibility with international SWIFT standards High dependency on the possibility and willingness of the local recipient bank to process the payment via RTGS system No clear definition of control mechanism for liquidity management Not sufficiently quick and reliable at the current stage 5

Summary 11/1/2020 RTGS Functional requirements - Online settlement over principal RUB NOSTRO - Instant settlement netting - SWIFT compatible - Liquidity management 6

11/1/2020 ING BANK (EURASIA) ZAO 36 Krasnoproletarskaya Street Moscow, 127473, Russia T. +7 495 755 5400 F. +7 495 755 5499 www. ing. ru 7