Pre-capitalization is ... The law on the capitalization of banks

The Bank creates funds that can guarantee its financial stability and fulfillment of obligations in case of problems. The amount of equity should exceed the normative value of the capital adequacy ratio. The latter is a kind of customer insurance. It shows that the bank is interested in normal activity in the market. After all, if shareholders invest their own funds, then guarantees that they will be invested with due care, more. But with a sharp deterioration in the quality of the loan portfolio, the capital adequacy ratio can reach the limit values. In this case, the bank runs the risk of losing its license.

Exit

To prevent a critical situation, the Central Bank takes measures to stabilize the financial condition of the organization. Pre-capitalization is the provision by the Bank of Russia to credit institutions of a subordinated loan. It is a part of additional sources of financing. This means that in the event of a bankruptcy of the organization, obligations to the Central Bank will be fulfilled last. The law declares the level and order of state participation in this process. Such loans can be issued not directly, but through the Agency for Insurance Deposits (DIA) in the form of federal loan bonds (OFZ). Such a scheme was used in the financial crisis of 2008 .

Last news

In December 2014, the Russian president signed the Law on the capitalization of banks for a total of 1 trillion rubles. The list of "lucky beggars" DIA published in February 2015. Loans will be provided not only through OFZ, but also by ordinary subordinated loans. This will help the DIA to resolve the issue of capitalization of banks. The participants of the program must prior to 01.06.2015 agree to purchase the obligations of the Agency, and the Central Bank - to provide requirements for a particular institution.

Conditions

The bank must increase, within 36 months, the volume of mortgage lending, loans to small and medium-sized businesses by more than 1%. It is also possible to direct cash flows to the most important sectors of the economy. Another requirement is to increase the authorized capital by 50% of the volume of funds received from the profits or investments of shareholders. At the same time, banks can not raise salaries for employees within the next 36 months. The latter factor to a greater extent and restrains leadership from taking a decision to participate in the program. Pre-capitalization is assistance that is provided on very harsh conditions.

The essence of the process

To industrialize the economy, significant infusions are needed in the production capacities of the state. In this case, the influence of Western investors should be limited. Banks must issue large-scale targeted loans. This is partly aimed at capitalization. The organization receives not "live" money, but OFZ. At the same time, she will have to raise a similar amount herself. You can get only a quarter of the already available amount of own funds, which, in turn, should not exceed 25 billion rubles. That is, capitalization is a measure to strengthen regional banks, which in the future can take a stable position in the market and develop independently. The same is confirmed by the terms of the program: organizations must monthly increase the loan portfolio by 1% or more.

international experience

The crisis of 2009 showed the effectiveness of this method. Then the US government allocated trillions of dollars to restore the financial condition of credit institutions without any sanctions. Four years later, the European Bank financed Greek institutions worth 50 billion euros. After stabilization of the situation, the investor receives the net profit of the organization. That is why it is so important that the state should act as the last.

The volume of own funds of credit institutions is decreasing due to the requirement of the Central Bank to form reserves. Part of the funds appears only on paper: overestimated OS, equipment, buildings and other values that can not be used as sources of financing. In order to control the situation, the Central Bank sets special standards and checks whether the organization's activities correspond to the capital opportunities.

For this stress tests are arranged. Risk analysts calculate how complex economic processes can affect the institution. In theory, this check should occur quarterly. In Ukraine, it was last implemented at the request of the IMF in 2014. Then, experts calculated how capital would respond in the event of outflow of deposits and growth in debt. Based on the test results, a decision was made on capitalization.

On the prospects for the development of the mortgage market

The Ministry of Finance expects that banks will be able to increase lending to real estate by 15%. This is another goal, which is aimed at capitalization. What does it mean? Banks will not be able to use the funds to buy foreign currency, as it did in 2008. It's a good news. But increasing the volume of loans to the required will be very difficult. It will be necessary to reduce interest rates and assume part of the obligations. Not all organizations agree to this. Since capitalization is voluntary, VTB24 and Rosbank have already refused to participate in the program, arguing that they already have enough profits.

The potential buyer of housing is affected by many factors: loan conditions, rising prices for apartments, confidence in a stable income. A slight reduction in the rate can be compensated by other monthly commissions. Therefore, hardly such a measure will increase the demand for this service. Mortgage at low interest will be able to issue only borrowers with an ideal credit history. This position of the bank is fully justified. And besides not every borrower can be sure that within 10-15 years his solvency will not worsen.

Experts predict that if the outcome is positive, capitalization will lead to a reduction in the rate, an increase in demand in the "economy" segment, in which the share of mortgage transactions is 80%. Persons who have an issue of buying an apartment are very keen, will use a small decrease in interest. The rest of the buyers are likely to wait for a significant change in the cost of the loan. The share of mortgage deals in the premium segment rarely exceeds 20%. Therefore, a change in the rate is unlikely to have an impact on demand. Most of the buyers of elite real estate pay installments on individual terms.

Pre-capitalization of the bank: what you need to know the depositor

1. This measure is used to increase assets or cover losses. The initiator of the process may be the shareholders. In this case, it is about raising funds for issuing new loans.

2. Having problems with the bank does not mean that it needs cash. Perhaps the Central Bank revised the standards, and the credit institution did not have enough accumulated profits from previous years to achieve the planned targets. Although capitalization of Ukrainian banks in 2014 was aimed at covering losses.

3. First, the institution refers to shareholders. If they do not have the opportunity to finance the organization, the search for third-party investors begins. The law on the capitalization of banks stipulates that all changes in the authorized capital must be registered with the Central Bank. After depositing funds into accounts, they can be used, like any other asset.

4. If the borrowed capital was not attracted to cover losses, the bank should either curtail the volume of activity or be liquidated.

5. Pre-capitalization is a recommendation, not a requirement. The increase in capital does not ensure the financial reliability of the organization. If the shareholders are dishonest, the funds can be used to replenish the loan portfolio. In this case, it is likely that over time the organization will again need financial assistance.

Conclusion

One of the ways that can be used to stabilize the financial condition of credit institutions is capitalization. What it is? Provision of financial assistance to the bank from shareholders, the Central Bank or other international institutions. The Russian president signed a law in late 2014, in which 27 regional institutions can receive a subordinated loan. But there are few who want to, because the terms of the loan are very strict.