Foreign investors pose potential risks to the stability of the Russian financial sector – Central Bank | Investment News

MOSCOW (Reuters) – The behavior of foreign investors poses potential risks to the stability of Russia’s financial sector, the central bank said in a financial stability report on Thursday.

Several months ago, Russia saw an influx of foreign investors who bought OFZ treasury bills on the secondary market, as the high yields outweighed the risks of Western sanctions for some.

But since then concerns about Russian military activity near its border with Ukraine have put pressure on Russian financial assets. The ruble lost around 8% of its value against the dollar in the four weeks after the end of October and the prices of OFZ Treasury bills fell sharply.

“At the moment, the Russian financial market is showing stability vis-à-vis the behavior of non-residents,” the bank said.

“Nevertheless, changes in market conditions – for example, an increase in global interest rates, tougher sanctions (on Russia) … may lead to temporary bouts of volatility in the Russian market.”

As of Nov. 18, nonresidents held 20.3% of OFZ bonds that Russia uses to fill fiscal holes, the central bank said, up from 21.6% as of Oct. 1.

The central bank also pointed to growth risks in retail loans and interest risks in the banking sector, among other possible threats to Russia’s financial system.

(Reporting by Andrey Ostroukh and Elena Fabrichnaya. Editing by Jane Merriman)

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