| Government refines banking strategy Almost six months of talk about the fact that the banking strategy requires clarification resulted in only one legislative amendment. True, very, very significant. The Ministry of Finance proposes to sharply tighten the requirements for capital adequacy of Russian banks, which the head of the department, Alexei Kudrin, will talk about at a government meeting today. To accomplish this task, the Ministry of Finance has prepared amendments to the laws “On Banks and Banking Activities” and “On the Insolvency (Bankruptcy) of Credit Institutions.” According to the amendments, the minimum level of capital adequacy for banks increases from 2 to 10%.
Capital adequacy (the ratio of equity and assets) is the main indicator of a bank's stability and its ability to meet its obligations. The first regulation of the Central Bank already requires that adequacy does not fall below 11% for banks with capital of less than 5 million euros and 10% for banks with large capital. At the same time, the Central Bank is required by law to revoke a bank’s license only if this indicator falls below 2%. The amendments proposed by the Ministry of Finance require the regulator to revoke licenses if capital adequacy is below 10% for two months.
The innovation should come into force on January 1, 2007. The explanatory note from the Ministry of Finance states that “the adoption of this amendment will improve the financial stability of credit institutions and strengthen investor confidence in the Russian banking system.” The proposals of the Ministry of Finance are fully agreed with the Bank of Russia, the Ministry of Economic Development and Trade and the Ministry of Justice - there are no contraindications. There is also no doubt that such a decision could complicate the lives of some banks and even undermine the not very stable domestic banking system. However, the White House claims that the 30 largest banks by the end of 2004 had a capital adequacy ratio of 16.4%. And the average for all financial and credit organizations is recorded above 10%. In other words, innovation is intended to consolidate the existing state of affairs. Although with a significant delay of two years.
Apparently, this postponement is a kind of psychological compromise that the government has prepared so as not to raise another wave of emotions in the already extremely emotional banking market. When a senior White House official, commenting on the consequences of this amendment, asserts that “banks will not be affected in any serious way because they are already doing well,” he is obviously trying to smooth out the reaction: according to the head of one of large Russian banks, the amendment will seriously complicate the lives of just a significant number of market participants.
The government hopes that after the introduction of the amendments, the Bank of Russia will have more opportunities to deal with those who are not in order with the availability of their own funds. But the government is confident that banks have enough time to bring their performance back to normal.
Today, the Minister of Finance will propose another innovation to the government, relating to the budget. An interdepartmental government commission will be created to plan it for the next year and the medium term (three years). Led by the Minister of Finance. The regulations on the commission and its personal composition will appear by February 20, after this date the new government body will begin its work. Vera KUZNETSOVA |
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