The capital of banks was strengthened by the revaluation

The volume of the most risky instruments for investors to maintain bank capital, subordinated liabilities, reached 2.8 trillion rubles at the beginning of March. The Bank of Russia for the first time began to publish data since the beginning of the year, and over the previous month, against the background of currency revaluation, they increased by 94 billion rubles. At the time of sectoral sanctions, it was a market tool for replenishing capital by state-owned banks. Now banks have the opportunity to place in currencies other than the dollar or the euro.

At the beginning of March, the subordinated debt of the banking sector increased by 94 billion rubles, to 2.8 trillion rubles, follows from the statistics of the banking sector of the Central Bank. A new line in the reporting appeared only from the beginning of the year. This was done “to increase the transparency of accounting, in essence they differ from deposits of legal entities and issued securities, on whose accounts they were previously recorded,” the Bank of Russia explained. At the same time, the growth in the volume of such liabilities in February was not associated with the active attraction of funds by banks. The Central Bank noted that we are talking about “the effect of the currency revaluation against the background of the weakening of the ruble in February.”

Subordinated instruments are included in capital calculations and support bank adequacy ratios. Many large banks have currency subords, in particular, the RSHB, VTB, Gazprombank, Sovcombank.

“Banks can include subordinated loans in capital only after obtaining the consent of the Central Bank,” explains Anna Timershyna, FBK senior expert.

Exchange differences due to changes in the exchange rate are reflected in the bank’s balance sheet on a daily basis, respectively, the ruble equivalent of the subordinated loan changes. “If the dollar exchange rate rises, then the bank’s liabilities (in ruble equivalent) increase,” says Anna Timershina. “Interest expenses and the result of exchange rate revaluation on subordinated loans are also reflected in separate accounts, the financial result is reflected in retained earnings.”

Currency subords two or three years ago were popular with state-owned banks (see “Kommersant” dated September 20, 2021), as it was the only market way to replenish capital in the face of sectoral sanctions from the US and the EU. At present, the demand for capital replenishment instruments (including subords) from banks will depend on growth prospects, which are directly related to the Russian economy and lending rates, says Elena Tsareva, senior analyst at BCS Mir Investments: capital will be distributed across the sector. There are separate large banks, which are now doing well with capital, which plan to pay dividends.”

According to Alexander Yermak, chief analyst of debt markets of BC Region, in January and February of this year, there were no placements of subords by banks.

In mid-March, the St. Petersburg Social Commercial Bank (PSCB) placed a subordinated loan for $15.8 million (about 1.2 billion rubles). In addition, since March 10, Dom.RF Bank has been placing a ruble subordinated loan, but out of 5 billion rubles. to date, 1.37 billion rubles have been placed, the analyst notes. Currently, the issue of placing foreign exchange instruments is facing infrastructural nuances, but the demand for them may remain. “Now the reality is different: you can choose currencies other than the dollar and the euro, for which there is demand, or place in rubles,” says Elena Tsareva.

However, it is a risky tool for an investor and is currently only allowed for qualified investors. In particular, if the bank’s capital adequacy ratio falls below a certain value and measures to prevent bankruptcy are introduced, these liabilities can be written off. In certain cases, coupon payments may be suspended. For example, in December last year, in order to strengthen its capital positions, VTB suspended coupon payments on a number of issues (see “Kommersant” dated December 8, 2022). Earlier last year, Sovcombank and HCF-bank suspended the payment of coupons on subordinated bonds, this year Tinkoff-bank resorted to such a measure.

Olga Sherunkova, Vitaly Gaidaev