Specially for Bankir.Ru, National Rating Agency (NRA) has prepared the 'Barometer of Liquidity'. In it NRA analyzed its own version of instant liquidity, using the methodology that is significantly different from the calculation standards of N2 Central Bank. The leaders became not large credit institutions, but, on the contrary, weak banks, which, for example, getting a bailout or are under the temporary control. Thus, it turns out that a good indicator could be a troubling symptom.
Those are the interesting results, in the context of full-fledged entry into force of the short-term liquidity standard (the requirement of Basel III) for systemically important banks, are they not?
The 'Barometer of Liquidity' is based on the value of instant liquidity ratio, which is defined as the ratio of quick assets (cash, correspondent account in the Central Bank, deposits in the Central Bank for up to one day, nostro accounts, government bonds) to demand liabilities (calculations for the currency, other calculations, accounts in precious metals, settlement and current customer accounts, demand deposits, loro accounts, demand credits, expired interbank loans, obligations with expired circulation, tax and economic operations arrears, means of budget funds and state-owned corporations), – explains the Head of NRA's Analytical Research Karina Artemyeva. She also emphasizes that the methodology is not the same as the calculation of the Central Bank's N2 standard. According to Karina Artemyeva, the Agency used all possible data, which many medium and small banks do not disclose publicly. The 'Barometer' is based on the data of commercial banks, whose net assets as of the last reporting date (December 1, 2015) account for more than 50 billion rubles, adds the NRA's representative.
There are 100 such credit institutions. And there are no any large banks in the top thirty of the 'Barometer' (assets-to-liabilities ratio – 1-8.29). At the same time, eight credit institutions, that is, more than a quarter, are getting a bailout or were deprived of license after the reporting date. The first place – Renaissance Credit. Apart from it, in the top thirty are also Investtorgbank, Express Volga, Trust, ROST Bank, Baltic Bank, Tavrichesky Bank.
Oddly enough, the biggest banks are at the bottom of the list. But does it mean that the major banks have problems with instant liquidity, whereas weaker credit institutions are more mobile in this sense and better prepared to meet their obligations if needed?
Karina Artemyeva of NRA says it is not. She notes that, on the contrary, such a huge amount of instant liquidity may indicate the unbalanced policy of credit institutions. 'It should be noted that these banks are mainly funded through accrued liabilities, thus reducing the denominator of the liquidity ratio, virtually no interbank loans, if we do not take into account money from connected structures,' says Artemyeva. In addition, she highlights, many banks in the top of the list are retail banks, which involves working with cash, therefore higher balances increase the numerator of the ratio. Simply put, a large amount of instant liquidity is due to the fact that credit institutions attract a lot and place little. It may mean inefficient use of funds, NRA stresses.
The Agency notes high market activity of the banks that have formally low performance. 'Usually a number of banks place all excess liquidity on the money market or in the mortgage portfolio of corporate bonds. In addition, high-quality banks have a lot of corporate resources on demand, which increases the denominator of the calculation, while such resources are conditionally stable sources of funding, and their amount (if customer base is diversified) is easy to predict with reasonable accuracy,' says Karina Artemyeva. Thus, in the bottom of the list are organizations such as Rosevrobank, Raiffeisenbank, SMP Bank, Alfa-Bank, BNP Paribas, ING Bank (Eurasia), HSBC and others. NRA notes that the level of their liquidity is sufficient.
'If the liquidity is too high, it is also a negative signal, this may mean that a bank inefficiently uses the resources that could have be invested in assets that generate interest income,' agrees Chief Analyst at Nordea Bank Yulia Martynova. She also notes that similar conclusions could be drawn from the report of Moody's, which analyzed the return on assets (ROA) ratio. 'The similarity lies in the fact that the probability of default increases if ROA is too small or too high,' says Yulia Martynova. In addition, she believes that in itself excessive zeal in compliance with the instant liquidity standard may signal significant problems in a credit institution. 'Troubled banks attempt to prevent violations of the N2 by any means, including the use of manipulation with financial statements,' says Chief Analyst at Nordea.
NRA also stresses that unnecessarily high levels of instant liquidity may show banks with extremely high interest rates, which have a high balance on hand, either unrealistic, or resulting from lots of cash transactions, which can be deposit and cash withdrawal. In addition, the Agency points out that often in order to regulate the parameters of long-term and current liquidity, banks carry out counter-operations on the interbank loans market with connected entities.
To sum up, as the amount of liquidity standards grows, it makes sense to think about how accurate picture itself the indicator gives on the possibility of a bank to fulfill its obligations. The structure of assets and liabilities, in this respect, shows the state of a credit institution much clearer.