New capital requirements for Russian banks could undercut competitiveness
MOSCOW. April 10 (Interfax) - The new requirements for calculating capital adequacy at Russian banks that the Central Bank has developed as part of amendments to its Instruction 110-I will reduce the competitiveness of Russian lenders compared to their foreign rivals working in Russia, Sberbank strategy director Dmitry Tarasov said.
"Our capital requirements are already fairly high. Now foreign banks are leaving our market, but the crisis won't last forever, it will end sometime. We have a big market, and they will return. They will have, in the form of trans-border loans, lending conditions that are far better than at Russian banks by that time. And it will turn out that we will lose competitiveness on our own market," Tarasov said at a meeting of the monetary policy and financial regulation council at the State Duma.
The Russian banking system is open and is part of the global market, and capital moves very quickly these days, he added.
Unicredit executive board member Dmitry Mokhnachev said the subsidiaries of foreign banks will move loan deals that fall under the new risk regulations abroad in order to avoid the burden on capital.
"Why are you forcing us? We who lend here, like Unicredit Bank, pay taxes in Russia. What can we do with the imposition of such severe capital requirements - 150% risk ratio? Essentially you are forcing us to book loan deals in Milan, in Vienna, and they will pay taxes there," Mokhnachev said.
Tarasov said that the Central Bank, by raising ratios for assessment of lending risks, is unwittingly forcing banks, "where things are not very good with capital" to halt a number of operations with borrowers, such as factoring deals. Furthermore, banks will be forced to reduce overly large positions on securities.
Another issue raising in the debates was that the new Central Bank requirements could hurt lending to small businesses, as the draft document strictly defines the parameters of lending to such businesses, while various banks' approaches to defining this category of clients differ.
It was reported earlier that standard approaches to assessing risks can be applied only to parties or groups of affiliated parties to which loans do not exceed 0.1% of the bank's equity, but no more than 5 million rubles.
The Central Bank's deputy head of bank regulation and oversight, Alexei Lobanov agreed at the meeting that the issue of such categorization as small businesses deserves to be considered separately.
"I would like standard criteria to be applied to small business in all documents that regulate capital adequacy and reserves, and not only now but in future as well, in Basel II," Lobanov said.
Mokhnachev also said that by putting loans to defense companies in the category of lower risk, the Central Bank is giving an advantage to state banks over private commercial banks and subsidiaries of foreign banks.