The short reprieve granted to the banking market is ending. On January 1, 2014, new Basel III standards will come into force , tightening capital requirements for banks. Initially, they talked about plans to introduce these standards from October 1, but in the summer the Central Bank decided to shift the deadlines, as it became known that banks in Europe and the USA were switching to Basel III from the new year. Thus, the Russian banking market received a little more time to prepare.

The tightening of standards will also not be as radical as was previously discussed. In fact, it turns out that both in terms of terms and standards, banks received some relaxations compared to the options that were initially discussed. In addition, information 1 has appeared that during 2014, banks will be able, in emergency cases, to calculate capital according to old standards and, if the result is satisfactory, it will allow them to avoid Central Bank sanctions.

Behind these details, hardly noticeable to an outside observer, there may be an intrigue associated with stimulating economic growth in 2014. On the one hand, it is necessary to spur the slowing economy, and one of the sources of revival should be cheap and accessible loans. On the other hand, the Basel recommendations are aimed at reducing risk appetite in the banking sector. One of the most likely consequences will be an increase in the cost of loans and a decrease in their availability, as banks will take a more strict approach to the selection of borrowers and will begin to care about the quality of the portfolio more than about its growth. These are very positive results for the stability of the banking system, but not a very pleasant consequence for economic authorities, who would like the economy to receive as much credit resources as possible.

You can even predict which areas to expect credit compression. Deleverage, or a decrease in the level of use of borrowed funds for credit operations, will occur primarily due to those areas of the banking business that require too much capital withdrawal due to high risks and, consequently, high reserve ratios.

This includes expensive loans to the population ( and the issuance of inexpensive loans is naturally limited by the banks themselves). However, reducing the volume of excessively risky retail lending is even a blessing in a situation of high debt burden on low-income segments of the population. The same cannot be said about lending to the corporate sector, which may also be somewhat frozen by the new Basel standards. Of course, the compression of lending in the corporate sector will begin with high-risk, peripheral business areas, with the least reliable clients, and among banks that are already on the border of acceptable capital adequacy levels.

Dilemma " growth vs. sustainability" is objective in nature. And also objectively it results in a traditional discussion between economic and monetary authorities. The former are in favor of credit stimulation of growth, the latter are in favor of reducing risk appetite. Compensation for a decrease in lending volumes with tightening capital adequacy standards should theoretically be a higher quality of the loan portfolio and lending in general. A decrease in risk appetite increases the stability of the banking system, and loans go to the best enterprises. The rate of growth is replaced by its sustainability. ... Read more →

This picture has already developed in some Northern European countries. For example, Scandinavian banks are the only ones in the world that already meet Basel III standards. At the same time, they continue to issue loans, and the economy receives funds for development. But we must take into account that Northern European countries have long traditions of business transparency and a stable culture of financial relations. And most importantly, economic growth in these countries amounts to a few percent per year. But this is stable growth, and it suits everyone. Russia is setting itself more ambitious goals. " Basel III" in the short term is somewhat at odds with the solution of these tasks.

The Central Bank has repeatedly stated that its priority is the stability of the monetary and financial system. This is the classic position of a regulator; he is responsible for the stability of banks and the currency, while stimulating the economy is not his task. But this is the task facing the economic bloc of the government. Adding to the intrigue is the fact that the Ministry of Economic Development is headed by the former deputy chairman of the Central Bank, Alexey Ulyukaev, who, of course, perfectly understands both the role of the Central Bank and the nature of the Basel recommendations, but is obliged by his position to seek to accelerate economic growth.

The adopted relaxations in the procedure and timing of the introduction of Basel III can theoretically be considered as a concession to the economic bloc, but, most likely, the motives are different. Since spring, the Central Bank has been receiving test reports from banks with calculations of capital adequacy according to new standards. The leadership of the central bank states that it was these data that made it possible to assess whether banks are ready and move the deadline from October 1 to January 1.

It can be assumed that the initial strictness of plans to introduce Basel III and subsequent relaxations are not political, but rather pedagogical in nature. The tighter preliminary plans may have served as a stress test of sorts. The Central Bank put forward more stringent requirements and deadlines in test mode, looked at banks’ readiness for these innovations, mobilized banks to prepare, and now provides more comfortable opportunities for adaptation.

However, the comfort is conditional - banks are already forced to change their lending strategies, but the process will not end there. The methodological recommendations of the Basel Committee also suggest further tightening of standards: the next batch of innovations is expected to come into force on January 1, 2015.

The author is Deputy Chairman of the Board of Directors of Nordea Bank

Financier column: Strengthening the banking system may hinder the revival of the Russian economy