Central Bank delays requirements for additional mutual fund provisioning until July 1
MOSCOW. Nov 29 (Interfax) - The Central Bank of Russia has delayed the imposition of the requirement to create additional provisions for investments in closed-ended mutual funds controlled by banks until July 1, a Central Bank official said.
"Banks which have overstate the value of stakes in closed-end mutual funds on their balance sheets and which have spun off non-core assets into these funds will have to provision more. There's no doubt that further provisions will be needed. As for the timing of the [clause 283-p] requirements, we have decided to accommodate the banking community and give it time to generate the necessary provisions, taking into account the profit that banks will earn in the first half of next year," Vasily Pozdyshev, head of the Central Bank's Banking Regulation Department, told reporters via the Central Bank's press service.
Overall investments in mutual funds and other equity instruments on the balance sheets of Russian banks at fair value were 703 billion rubles or 1.3% of total banking sector assets a of November 1, the Central Bank said.
It is estimated that banks will have to provision the equivalent of 0.2% of their overall capital adequacy, which will be compensated by their profits.
The Central Bank said banks would have time to tidy their balance sheets with respect to non-core assets, and the measure will not therefore have a major impact on the capital adequacy of banks.
The amendments that would oblige banks to provision for several categories of closed mutual funds were to have been introduced on January 1, but banks asked the regulator to delay this. Pozdyshev said on November 28 that the Central Bank was thinking about delaying the introduction of the requirements.
"There are two categories of closed mutual fund - either those controlled by the bank those in which the bank has considerable leverage, where their fair value cannot be reliably determined and for which a special sub-account will be instituted. And banks will have to shift some of their closed mutual funds to those sub-accounts. And those sub-accounts will have to be in the category of accounts for which provisions have to be made," Podzyshev said.
Podzyshev said in the past that the amendments were needed because after the 2008 crisis, when banks received a lot of non-core assets, above all real estate and land for debt, the Central Bank obliged banks to form provisions for those assets.
But he said businesses had "discovered a loophole of sorts in the form of closed mutual funds." The law defines a closed fund as a security in accordance with International Financial Reporting Standards (IFRS). In other words, they are assessed at their current value and provisions are not required. The regulator is not trying to "restore justice," Pozdyshev said.