From the new year, the rules of the game will change again for Russian banks - a number of indulgences introduced against the backdrop of severe financial turbulence as a result of military operations in Ukraine and sanctions will be canceled. "Kommersant" figured out what the real effect of benefits for credit institutions turned out to be, to what extent market participants are ready to work without them, and whether they can count on the extension or even expansion of support measures.
Regulatory special effects
The financial sector was one of the first and immediately felt the consequences of the outbreak of hostilities in Ukraine on February 24, so the regulatory changes were not long in coming.
Already in March, the Central Bank made it possible to fix the rate and value of securities on the balance sheets, based on the previous levels of assigned ratings (foreign rating agencies stopped working in the Russian Federation and rating Russian companies). The Central Bank also dissolved the macro allowances accumulated by banks on all types of loans for those against whom sanctions were imposed. Measures were no longer applied to them if they did not comply with the limits of open currency positions (OCP, although banks should not increase the OCP relative to the level as of July 1, 2022).
The regulator allowed until the end of the year to postpone the formation of reserves for possible losses on assets that were blocked due to sanctions. In addition, the Central Bank introduced a relaxation of the structural liquidity ratio (net stable funding ratio) N28 (N29) to preserve the ability of systemically important credit institutions (SICIs) to lend to the economy in the face of changes in the structure and maturity of liabilities, as well as the blocking of certain assets. Benefits expire on December 31, 2022.
All the relaxations introduced by the Central Bank, in fact, provide incentives for the level of capital adequacy (now, like many other indicators, including the results of banks, are not disclosed), and allow maintaining the pace of issuing loans, both in the corporate and retail segments.
The measures taken have had a positive impact on the financial results and stability of the banking system, believes Konstantin Borodulin, director of NRA banking ratings. “In relation to our bank, the overall impact of key easing by the Central Bank amounted to about 2 percentage points of the bank’s H1 capital adequacy ratio (mainly due to the dissolution of the “macroprudential” buffer),” says Ekaterina Bugayeva, member of the board, CFO of Rosbank. She did not disclose the indicators themselves, assuring only that the bank "maintains them at a high level."
Nevertheless, even with all the support measures, the banking sector recorded a large net loss in the first half of the year, emphasizes Yuri Belikov, Managing Director of Expert RA. According to the Central Bank, in January-June, the banking system of the Russian Federation received a total loss of 1.5 trillion rubles.
By autumn, the situation improved somewhat, at the end of November, the Central Bank assured that "banks have significantly reduced the negative result obtained in the first half of this year." But they admitted that credit institutions "are unlikely to be able to make a profit at the end of the year."
Experts believe that in the absence of relief, the situation would have been completely catastrophic. “Without relief in terms of reflecting the impairment of securities, reserving restructured loans, the loss would have been greater,” Mr. Belikov believes. new issuances - lending to the economy and citizens. This threatened a dramatic slowdown in lending up to its halt in some months.” The easing, the expert believes, allowed banks to maintain a reserve of capital for the issuance of borrowed funds in the face of a radical drop in the pace of its autonomous generation.
Market participants consider the liquidity incentives to be no less important step of the Central Bank. “The easing in terms of H26 made it possible to reduce the already high competition of banks for customer funds, which had a positive effect on the level of attraction rates and, as a result, on interest expenses of banks,” Rosselkhozbank explains. The privileges on the ORP limit, they add, allowed banks, in conditions of limited opportunities for concluding “currency swap” transactions, to quickly provide funding for foreign exchange assets, with the subsequent adoption of measures to change the currency structure of the balance sheet.
Problems with frozen assets have affected credit institutions to varying degrees, which none of them disclose. A top bank manager from the top five says that only for him it is "hundreds of billions of rubles." The Bank of Russia also does not disclose data on the volume of banking assets frozen abroad, although at the end of August the regulator collected relevant information from market participants.
Life under the hood
The sharp limitation of information, which seriously complicates the analysis and assessment of the situation on the Russian financial market, is another striking trend of the current crisis. The Central Bank almost immediately after the start of the conflict allowed banks not to publish statements until December 31. And although this measure does not directly affect either capital or liquidity, it should not be underestimated.
“The classification of the reporting of credit institutions and other participants in the financial market pursued not only and not so much counter-sanction goals,” Yuri Belikov believes. “First of all, the lack of information about the financial situation was designed to minimize the panic of customers and counterparties.” Conditionally, all credit institutions were equalized, since for none of them, with the exception of rare cases of limited disclosure of interim results, an external user could not obtain confirmed up-to-date information, the expert emphasizes.
This measure is also valid until 31 December. “We are actively discussing the format of information disclosure next year,” said the head of the Central Bank, Elvira Nabiullina, in mid-November. “Our position is that we need to start disclosing. Of course, the formats will change somewhat.”
In particular, the regulator plans to resume the monthly publication of the turnover sheet for bank accounts (form 101, RAS), but not in the previous detail, but in an aggregated form, said Alexander Danilov, head of the Banking Regulation and Analytics Department of the Central Bank (for an interview with him, see same page): “Will be quite informative. It is clear that, perhaps, there will not be any juicy details regarding residents and non-residents, but these are just things that can contribute to sanctions risks.”
However, there will be exceptions here too. According to the interlocutor of Kommersant in a large bank that fell under the sanctions, "there is already an understanding that the sanctioned market participants will have the right to close certain data by presidential decree."
The attitude of banks to the resumption of publication of financial statements is different. Thus, Sberbank, the largest on the market, which fell under blocking sanctions, has already begun to disclose its financial statements (see Kommersant of November 11). “Access to this information is necessary to build relationships with customers, partners and shareholders,” the bank explained. “Therefore, following discussions with the regulator, we came to a common understanding that disclosure of financial statements will benefit the market.”
Rosbank also supports the resumption of data disclosure, albeit in a reduced format: balance sheet, statement of financial results, cash flows, capital, and the quality of the loan portfolio. “This will allow clients and correspondents to receive the most up-to-date information on the financial condition of the sector and individual banks,” says Ekaterina Bugaeva. “Publishing reports, even in abbreviated form, will reduce additional communications with counterparties.”
However, VTB, the second largest in the Russian Federation (also under blocking sanctions), takes the opposite position. “Don't wait for us yet,” VTB CEO Andrey Kostin answered a question about the resumption of data publication. According to the results of 10 months, the bank showed a loss, the amount was not disclosed.
Experts believe that it is necessary to gradually open the data. “Such a decision can only be welcomed,” says Valery Piven, Senior Director, Head of the Financial Institutions Ratings Group at ACRA. “As for disclosure limits, banks can be given the right to determine the desired minimum for a certain period.” The lack of basic information on the financial position of banks greatly worsens the quality of risk management for all market participants and makes it impossible to monitor the state of the sector as a whole, emphasizes Yuri Belikov.
Feedback is negative
There are also controversial points in the plans announced by the Central Bank to change banking regulation. Banks traditionally do not criticize the ideas of the regulator. But experts believe that, for example, the idea of launching irrevocable deposits as a source of long-term money for banks is very ambiguous.
“The introduction of irrevocable deposits, indeed, can be considered, but it’s not a fact that this will become a factor in lengthening liabilities,” believes Valery Piven, head of the ACRA financial institutions rating group. “Prolonging the terms due to higher rates may make such attraction unprofitable for banks.” According to Konstantin Borodulin, Director of NRA Banking Ratings, the irrevocable deposit bonus can start from a few percentage points, but will greatly depend on the possibility of a partial withdrawal of funds. “In conditions of high inflation and stagnation of real disposable incomes, financial planning for citizens is complicated,” adds Yury Belikov, managing director of Expert RA, “And this means a decrease in the predictability of the need to withdraw funds. It seems that such an instrument can only be introduced in a period of socio-economic stability.”
At the same time, the expediency of funding projects for restructuring the economy at the expense of funds raised from the population is doubtful and requires a multilateral balanced discussion, Mr. Belikov emphasizes: “Really long money for the banking system is the funds of institutional investors. The problem has traditionally been in the uneven distribution of them among credit institutions. If it is not resolved, then the financing of projects for restructuring the economy will have to be closed to a limited circle of the largest banks, primarily state-owned ones.
There is no real way out
In general, both banks and experts agree that the extension of easing in one form or another is necessary. So far, the only player officially ready to declare a complete rejection of their use is the same Sberbank. “The bank with a margin complies with capital adequacy requirements and does not use any indulgences of the Central Bank,” they assured.
Rosselkhozbank considers it expedient to extend the easing in terms of the short-term liquidity ratio (N26), taking into account the “normal situation for the end of the year with a shortage of resources”, as well as subject to other liquidity ratios (N2 and N3) “with a significant margin”.
Rosbank is ready to apply for an extension of measures for 2023, "in order to maintain the volume of lending to the Russian economy, maintain the stability of the consumer market while ensuring reliable and stable operation of the banking system."
There will be no harm from extending most of the measures - they can be canceled when the banking sector enters "a sustainable trajectory for growth and profitability," Valery Piven believes. “Especially given that the Central Bank is gradually beginning to tighten the requirements for the work of banks with risky segments - for example, a restriction has been introduced on certain types of unsecured lending,” the expert adds.
Of the new measures announced by the Central Bank in terms of facilitated regulation for the next year, the possible zeroing of capital adequacy allowances from 2023 can provide significant support to banks. This will allow increasing lending to the "transforming economy", believes Yegor Lopatin, deputy director of the group of ratings of financial institutions of the NKR agency.
Experts also call it expedient to maintain benefits for frozen assets, "because so far the banks have no real way out."