Central Bank sets individual capital adequacy ratios for two Chinese banks

The Central Bank has set individual values ​​for capital adequacy ratios for two Chinese banks, which are 1.5-3 percentage points lower than the minimum required in the Russian Federation. This is generally a rare practice, and so far only one precedent has been known for capital requirements. Indulgence from the regulator gives banks the opportunity to expand without the cost of increasing capital, experts say.

The Central Bank has set benchmarks for the adequacy of basic and fixed capital (H1.1 and H1.2) for the subsidiaries of the Chinese Bank of China and ICBC in Russia, Bank of China and Isibisi Bank, follows from an analysis of bank statements by Kommersant. The values ​​were valid as of June 1 and July 1, 2023 and amounted to 3% with the actual excess of this level. So, H1.1 and H1.2 for Bank of China amounted to 7.2% each, for IBC Bank – 23.8% with a total mandatory mandatory minimum of 4.5% (according to H1.1) and 6% (for H1.2).

The publication of reporting forms was suspended from March 2022 due to sanctions risks and resumed in a limited form only in June 2023. Therefore, new control values ​​could have been set at any point during this time period.

Exceptions are usually introduced for a period of not more than a year. The Central Bank can establish them at the request of the bank for many reasons: changing the methods for calculating standards, capital, creating reserves for credit losses, changing the composition of groups of related borrowers in legislation or regulations (both among themselves and related to the bank), as well as the emergence of already after signing contracts with them, the grounds for referring to related. The regulator changes the control value according to the standards either in case of its actual violation, or if it can only be allowed. What exactly was the cause in this case is unknown. The Bank of China, IBC Bank and the Central Bank did not answer “Kommersant”.

The regulator rarely sets lower control values ​​for the standards. This was done, for example, in 2014 for North-Eastern Alliance Bank (its license was revoked in 2017) under the H12 standard, which limits the risk of bank investments in shares or shares of other legal entities. In the case of capital adequacy, a single example is known – at the beginning of February 2014, at the NCO “Payments and Settlements” (according to H1.0).

The very concept of the control value appeared in the instructions on the mandatory ratios of banks in 2012. The establishment of a mandatory ratio control value for a bank is an exceptional event, bank expert Alexei Nechaev confirms: “This happens if a bank that sees a high risk of violating the standard has received permission from the supervisory authority not to comply with it.”

“Bank of China” and Isibisi Bank are the largest subsidiaries of Chinese credit institutions in Russia in terms of assets. At the end of the first half of 2023, their assets amounted to 494.5 billion and 376.2 billion rubles. respectively. Banks are growing rapidly: in just six months, Isibisi Bank’s assets increased by 75.2%, four times compared to the beginning of 2022. Bank of China showed growth of 24.3% in half a year and 4.9 times since the beginning of 2022.

Both banks are pivotal for Chinese business, Expert RA noted in its latest rating actions. Many Russian banks are in their correspondent service. After the beginning of the division of currencies into “toxic” and “non-toxic”, as well as the intensification of trade with China, the popularity of the yuan began to grow rapidly (see Kommersant of July 13).

By setting a benchmark below the regular minimum, the CBR “seems to be encouraging these banks to expand their business without the necessary increase in capital stock,” said financial expert Olga Ulyanova. “Probably, this is also a signal for them to be more actively involved in the settlement business,” she notes.

According to Mr. Nechaev, the control values ​​​​are set “preventively for safety net.” The volume of payments through these credit institutions is “rather volatile”, the expert says, the balances on their accounts in other banks can reach large values, which will put pressure on adequacy ratios, despite the low risk factor provided for these positions by the regulator. More than 40% of Bank of China’s assets are held in accounts with other banks, with IBC Bank having more than 62% of assets, semi-annual reports show.

Olga Sherunkova