Sberbank, VTB expect capital adequacy to decline due to new requirements
MOSCOW. March 29 (Interfax) - Russia's two largest banks, Sberbank and VTB , expect a decline in capital adequacy due to the introduction of new Central Bank requirements this summer.
As part of amendments to its instruction No. 110-I on mandatory bank ratios, the Central Bank is introducing a number of higher risk assessment coefficients for calculation of the capital adequacy ratio on July 1 and October 1. The higher coefficients will be applied to assessment of risks on borrowers who do not agree to provide information to a credit history bureau, refuse provide information on the main part of their credit history, as well as on noncore and problem assets. In addition, a higher coefficient will be used to assess bank investments in mutual investment funds and collective investment funds.
VTB believes the reduction of the capital adequacy ratio as a result of the new requirements will constrain further growth of the bank's assets.
"The N1 capital adequacy ratio is now about 13%. Given a negative turn of events it will hypothetically fall, but still remain above 11%. The problem is that this will constrain future growth of assets," VTB deputy CEO Herbert Moos told reporters. The minimum capital adequacy requirement is now 10%.
Other banks will also face this problem, he said. "The impact on the capital of VTB is estimated in the hundreds of billions of rubles of additional assets, balanced by risk. For other banks this is also significant," Moos said.
Sberbank reckons its capital adequacy will decrease only slightly due to the new Central Bank requirements. "Not very much, we're talking about a decrease of about 0.3-0.4 of a percentage point," Sberbank deputy CEO Anton Karamzin said during a conference call on Wednesday.
VTB's N1 capital adequacy ratio was 12.64% on March 1 and 11.24% on January 1, while Sberbank's was respectively 14.66% and 15.20%.
VTB head Andrei Kostin believes that the assessment of the quality of assets when lending should differentiate offshore companies that are backed by real businesses, from shell companies.
"We believe that the Central Bank is, on one hand, reacting to the events that occurred around the Bank of Moscow , trying to restrict operations with fly-by-night firms. But on the other hand, this must be done extremely carefully, separating offshore companies on which hang Russian industry and the economy (many of the largest companies register assets with holding companies), and those firms that don't in fact have anything," Kostin told reporters on Wednesday.
The Central Bank is discussing the possibility of easing the requirements of instruction No. 110-I in regard to assessment of risks on loans to transparent borrowers, Central Bank first deputy chairman Alexei Simanovsky said in mid-March.
The premise of instruction No. 110-I is that nontransparent transactions are riskier, so a coefficient of 1.5 is applied to their assessment.
However, if a bank can demonstrate that the corporate borrower is conducting a real business, and is not just a "transit," technical firm, then requirements for such loans should be eased, Simanovsky said.
The new requirements of instruction No. 110-I began to be applied to new loans on October 1, 2011 and on July 1, 2012 the instruction is supposed to be extended to all bank operations, old and new.
The Central Bank's new regulatory requirements will reduce capital adequacy in the banking sector as a whole by 1-2 percentage points, the deputy director of the Central Bank's regulation and oversight department, Mikhail Kovrigin said at the end of September 2011. Nonetheless, capital adequacy will remain at a high level, he said at the time.