CBR believes it likely banks could lose half of capital, but there is margin of safety - Tulin

MOSCOW. April 14 (Interfax) - Russian banks losing half of their capital today is a likely scenario, but the CBR has no fears in that regard, First Deputy Central Bank Governor Dmitry Tulin said during a meeting of the working group on preparation for review of the regulator's annual report.

"The loss of half of the banking sector's capital seems a likely scenario for today, but it does not scare us," Tulin said.

"At the start of the year, as of January 1, the capital of the banking sector in the general regulatory dimension was about 12.5 trillion rubles. The so-called capital reserve or capital margin of safety with all its varieties and types, it was about 7 trillion rubles. What does it mean to compare: a capital reserve of 7 trillion rubles against a capital reserve of 12.5 trillion rubles? It means that if banks were all homogeneous in terms of the actual capital adequacy ratio, banks could lose a little more than half of their capital due to some crisis or blow, and still even comply with mandatory capital adequacy ratios, that is, the margin of safety seemed even somewhat excessive," he added.

"We were the first to make estimates, estimates of the banking sector's possible losses as of the end of this year, if we are honest about this. As part of our work with banks, we shared these figures with them to reassure them and tell them that it's okay, let's keep working, lending, operating. We will make more accurate calculations in the fall and figure it out. The figures were shared, and some banks used these figures in a dialogue, in correspondence with the government, defending their interests. It turned out that the figures were released to the media anyway and did not cause any turmoil. There was complete calm. That is, the loss of half of the banking sector's capital - it seems for today is a very likely scenario, but we are not afraid," Tulin said.

In mid-March, VTB CEO Andrey Kostin and Sberbank CEO German Gref sent a letter to Prime Minister Mikhail Mishustin in which they provided estimates of potential losses from participation in government programs to support the economy: the combined losses of the two largest banks, which are themselves under severe restrictions, could amount to nearly 600 billion rubles. The letter also noted that the CBR estimated that losses for the banking system in 2022 would be from 3.5 trillion to 5.8 trillion rubles without factoring in negative revaluation of securities totaling about 2 trillion rubles. The Central Bank did not comment on these estimates.