Central Bank of Russia needs to facilitate introducing CDS - Aksakov

MOSCOW. April 9 (Interfax) - Anatoly Aksakov, chairman of the State Duma committee on financial markets, during the Russian Central Bank's report to parliament said that credit default swaps should be introduced in Russia, and instruments for hedging foreign economic risks for exporters that are practically absent after the departure of Western players should be developed.

"There is such an instrument and it is called a credit default swap. They are practically absent in our country. This is when loans are given to borrowers, though there is also always a risk that borrowers could find themselves in a difficult financial situation and, accordingly, would not fulfill their obligations. We do not have this instrument. This instrument for hedging such risks is very widely developed abroad, and, accordingly, it allows, among other matters, to reduce the burden on the capital of credit institutions, since they have insured their risk, that is, they can more actively use their capital to expand lending," Aksakov said.

Aksakov said that Central Bank regulatory decisions are necessary to implement this instrument.

He also indicated the lack of mechanisms for hedging currency risks, including among participants in foreign economic activity.

"It is also necessary to develop financial instruments, which, unfortunately, is now quite clearly evident with the departure of Western companies, Western banks from our country. We have very poor hedging of risks associated with foreign trade. Many companies trade abroad, and there are constant fluctuations there. We see that the exchange rate is constantly jumping, so there are naturally risks for companies that work with currency on the foreign market, and these risks need to be hedged accordingly," Aksakov said.

Aksakov added that only a small part of these transactions are currently insured. "Only 10% of such transactions are hedged, all the rest, unfortunately, 90% of foreign trade transactions are not insured in any way using special instruments," he noted.

Aksakov called on the Central Bank to facilitate the process and to create conditions under which market participants would have access to the appropriate instruments allowing them to protect themselves from risks and work more actively in both the credit and foreign trade areas.

CDS are derivative financial instruments that allow insuring the risk of non-fulfillment of debt obligations by the borrower. The operation mechanism is that the buyer of the swap pays the the seller of the swap a premium in exchange for an obligation to compensate for losses in the event that the issuer defaults.