bne IntelliNews -

Russia's central bank is blaming large corporates and banks, including state-owned ones, for accelerating the ruble's downwards spiral by speculative trades with currency derivatives. 

"We have witnessed how large Russian corporations have made massive losses on OTC [over the counter] forward currency contracts," head of the Central Bank's department for financial stability Sergei Moiseev told business daily Vedomosti.

According to Vedomosti, the central bank has an Achilles Heel in its financial regulation - an enormous hidden market of OTC forward currency contracts, the total size of which regulators have no idea about, "because neither the volume of the market nor the volume of losses is disclosed to us".

"The central bank frequently declared its plans to move to a ruble float, and it was entirely obvious that this would lead to more volatility, but still many banks managed to sell significant volumes of OTC forward contracts to their clients, mostly large corporates," Moiseev said. "As a result, when the price of oil fell, many of these contracts were triggered."

According to regulators, in part this market is adding to the massive downward pressure on the ruble, although the bankers say they are simply hedging their risks.

"A large part of the derivatives are not real hedges, but have been taken out for the purpose of reducing interest payments on credits, or for earning speculative money on currency fluctuations," Moiseev said.

As oil and the ruble drops precipitously in value, exporters who have taken out such contracts to sell banks their dollars at a future date, are forced by margin calls to close the position early, adding to the pressure on the ruble exchange rate, and causing huge losses to the companies in question, Moiseev said.

Large state banks and energy companies may be among the main players in this game. According to Vedomosti sources, for example, one state-owned bank actively encouraged exporters to take out forward contracts to sell it dollars, by offering reduced interest rates on loans to those who did so. Now margin calls are being triggered as the ruble exchange rate collapses.

Moiseev said that the situation was now under control. "Most of these contracts have either been terminated early with payment of compensation, or are restructured (...) luckily there are not trillions of dollars worth of positions [as in case of US Lehman Brothers in 2008] so it was possible to regulate the situation more or less quickly," he said.

Head of state-owned bank VTB Aleksei Kostin recently said he would punch anyone who suggested his bank was speculating against the ruble, media reported. Russian president Vladimir Putin for his part said in his address to parliament December 4 that speculators betting against the ruble "would be punished".