How regulatory easing affected credit institutions and the work with frozen assets was told to Kommersant by the head of the department of banking regulation and analytics of the Central Bank Alexander Danilov.
- Now banks enjoy a number of concessions, most of the benefits are valid until the end of the year. What effect do you think they provided? What is planned to be extended and what is to be stopped?
— At the very beginning of the crisis, we promptly introduced a large package of regulatory easing. First of all, the exchange rate and the value of securities were fixed so that banks would not violate regulatory requirements, including capital requirements, due to high market volatility. They also provided a delay in the formation of reserves, although the effect of the application of this measure is still limited and will grow gradually, as problems mature.
Fixing exchange rates and the value of securities may not be extended. We estimated that at the moment the vast majority of banks, even with the complete abolition of measures, will be able to comply with capital adequacy requirements with surcharges.
As for the relief on the formation of reserves, here we are considering the possibility of extending for a year with a phased cancellation, as during a pandemic. Credit risk has not yet fully materialized and banks may need additional time and flexibility to adapt.
We will also extend the relaxation of the short-term liquidity ratio, which is applied to systemically important credit institutions (SICIs). At the same time, we are developing a short-term liquidity ratio more adapted to Russian specifics, which we want to extend to all banks by revising the current liquidity regulation system. But it will come into effect no earlier than 2024, possibly in stages.
- Will there be other concessions? For example, related to the freezing of assets against the backdrop of sanctions.
— With frozen assets, the situation is objectively more complicated: we understand that work with them will be long. Therefore, we are ready to give banks an "installment plan" for ten years to resolve these problems. Banks will need to evenly reduce the net (excluding reserves) amount of frozen assets. That is, it is necessary either to gradually reserve them, or to settle them, for example, through the offsetting of claims and obligations, if the banks can agree. Thus, we give banks more flexibility and encourage them to solve problems with such assets on their own.
- Are there any estimates of the volume of frozen assets? What impact can their reservations have on banks?
We didn't release numbers. On a sectoral scale, they are not so large, although they can be significant for individual banks. Given the planned ten-year provisioning schedule, there will be no one-time pressure on capital, and banks' profits will be enough to gradually cover the problems.
— What ways do you see for banks to independently solve problems with frozen assets?
- There is no general recipe for everyone, everyone needs to proceed from their own situation. First, if possible, offset frozen claims and obligations to unfriendly non-residents. It is unlikely that it will be possible to return a lot in this way, but it is worth trying. This option is more likely to work for assets and liabilities, where the counterparty is the same. Unfortunately, in most cases, funds are frozen in some banks, while obligations to other creditors, and bilateral netting may not work.
Secondly, under the new law, banks can now allocate frozen assets and liabilities to foreign creditors (even if the counterparties are different) into independent legal entities, which avoids the creation of reserves and, in fact, relieves banks of legal liability for the corresponding obligations. Nevertheless, it is important that banks continue to exercise control over the activities of such companies and that they do not turn out to be ownerless.
— Are you ready to give concessions on reserves? Are there any plans for incentives for capital, standards?
— Yes, there will be certain relaxations in terms of capital adequacy, taking into account the abolition of incentives for fixing the exchange rate and prices, and in the future, for reserves as well. We expect banks to reflect some losses, but make it easier to recognize them by temporarily removing capital surcharge requirements. We cannot allow a situation where a significant part of the sector will be forced to refuse lending. This will complicate the ability of companies to restructure and have a negative impact on the banks themselves.
Most banks will be able to comply with surcharges even if the easing is lifted. But some, the first to be sanctioned and already recording significant losses, may find it difficult to comply with the surcharges. For others, the risks may materialize later.
In order to give more flexibility in managing capital and support lending, we are considering zeroing out surcharges for all banks from the beginning of 2023 and establishing a five-year schedule (with an annual grace period) for their gradual recovery. If the preferential schedule is met, they will not be subject to the requirements for the formation of capital recovery plans and will not be worsened for the purposes of determining the risk weights for the interbank market. In return, banks that will enjoy benefits cannot distribute more than 50% of profits.
In general, banks should try to get out of the relaxations themselves as early as possible, without waiting for their cancellation, and adapt their business models to the changed conditions.
— What does the regulator plan to do to encourage banks to lend to projects that are positioned as important for the adaptation of the economy as a whole?
— We want to introduce risk-based regulatory incentives for banks that finance priority projects that ensure technological sovereignty and modernize the economy. The idea is that by promoting economic growth, banks ultimately reduce their own long-term risks. As incentives, we consider the possibility of reducing the capital requirements for banks on loans for development projects.
— What will be the risk orientation?
— Firstly, the more priority the project for the development of the economy, the more significant the reduction in requirements can be. This will allow not to spread out and focus support on projects that will give the greatest economic effect. The government, together with the Central Bank, is already working on the criteria for such priority projects.
Secondly, when determining the amount of relief, we will take into account credit risk: the better the economics of the project and the more additional solvency factors it has (for example, this can be expressed in the high financial stability of the company implementing the project, or government support measures), the less likely it is that lowering prudential requirements on this loan would create excessive risks for the bank.
Finally, to protect the stability of the financial system, each bank will be subject to an individual limit on the amount of additional risk that it can accumulate through lowered requirements. The full measure of relief will be available only to banks that have a capital stock and are able to regenerate it relatively quickly from profits.
— For lending to long-term projects, long-term money is needed. Are there any steps planned in this area?
— The topic of long money is especially relevant now. We are considering options for "lengthening" liabilities in order to reduce banks' balance sheet risks. As you know, our banks are mainly funded by client accounts, the placement of funds in which in practice is rather short-term. The share of long-term deposits is less than 15% of the sector's liabilities, of which about half are placed by individuals, while people can take them ahead of schedule with a loss of interest.
There are few truly long-term instruments for raising funds from banks - in fact, bonds and corporate deposits. We are considering a new type of retail deposit, which would be irrevocable, but would have an increased amount of insurance coverage - for example, up to 10 million rubles, as in escrow accounts. The appearance of such deposits will allow banks to better manage liquidity and interest rate risks, and clients to receive additional profitability and be confident in the safety of funds.
- How much will this increase the burden on the Deposit Insurance Fund (DIF)?
— It will depend on how popular the instrument becomes among the population. We estimate that the burden will be moderate and may not even require an increase in bank contributions to the fund.
- Now banks can issue irrevocable certificates, but the tool is not very popular. Are you considering development?
“Right now, only five banks sell savings certificates, and other banks don't seem to have much of a desire to do so. The volume of savings certificates is insignificant: as of October 1, 2022 - 4.4 billion rubles, which is less than 0.1% of the total amount of funds of individuals, and has decreased by 17% since the beginning of the year.
We need to figure out why this is happening: is it the instrument itself, or are banks simply not willing to pay more for long-term resources? Nevertheless, we will think about simplifying the circulation of certificates. For example, you can cancel or make notice the procedure for registering the conditions for their release, convert them completely into numbers and organize trading on exchanges. So it will be easier and faster to buy, assign a certificate, if necessary, regardless of the location of the bank and the depositor. The conditions of certificates should be as simple and attractive as possible: how much you put in, so much you take away, plus interest. No interest ladders, additional difficult-to-implement conditions for maximum profitability.
— What other plans does the Central Bank have to change regulation in the current situation? Have you abandoned plans for "ecosystem" assets, the introduction of a new concentration standard for SZKO, etc.?
— The problem of credit risk concentration remains relevant, especially given the closure of international capital markets. The fact is that the largest Russian companies are comparable in size or even exceed the leading banks. Our capital market is also relatively small. There are no easy solutions, and a systematic approach is needed.
First, banks themselves need to be more actively involved in risk reduction, as well as their even distribution throughout the system, for example, through syndication. Secondly, more active involvement of development institutions in the financing of large long-term projects is required - it is not necessary to participate in money, it can also be guarantees in favor of banks. Thirdly, the state can participate directly by financing individual projects from the NWF or by providing state guarantees.
We are not refusing to introduce a large credit risk ratio (H30) for SIBs, as it performs an important function of maintaining financial stability. But the introduction should be delayed and gradual, not earlier than 2025, and also synchronized with the progress on the rest of the tracks.
As for the so-called immobilized assets, the risks of their accumulation on the balance sheets of banks remain on the agenda of the regulator. In the current circumstances, these risks may even increase due to the growth of bad debts and the forced transfer of part of the collateral to the ownership of banks. Therefore, as planned, we will gradually introduce a risk-sensitive limit on immobilized assets into regulation, ensuring that banks sell excess non-core assets or cover them with shareholder capital. The introduction of this regulation will be smoother and extended in time, not earlier than 2025.
And these are just a few of the topics on our agenda. We plan to release a regulation strategy this year, where we outline the priorities for the next few years.