‘Collapse of Ruble May Lead to Arrears Growth’ – Interview with Viktor Chetverikov

Sharp changes of the ruble against the dollar and the euro cannot make the bankers happy. The collapse of the national currency complicates the already difficult for many implementation of the Central Bank's regulations. Bankers have already asked for preferential rate for calculating the ratios, but the regulator is not ready to re-enter the anti-crisis measures, like last year.

CEO of National Rating Agency, Viktor Chetverikov, told Banki.ru about what kind of assistance is needed for Russian banks.

– How the January ruble devaluation may affect the reporting of banks – in particular, compliance with the regulations? How crucial the current increase in the foreign currency value for banks?

– Indeed, the sharp change in the ruble exchange rate against the dollar is reflected in banks' financial statements, in particular in three ratios – N1, N3, and N6, so, it applies to capital adequacy, current liquidity, and maximum exposure to risk of one borrower.

Capital adequacy ratio is calculated as capital to risk-weighted assets. And just because of the growth of the dollar exchange rate, all assets after the revaluation will increase dramatically in the ruble equivalent. Probably, those banks that have a low level of capital adequacy, may face the need to increase its own funds.

N6 is a risk per borrower. Naturally, foreign currency loans in rubles increased significantly, and this may lead to an increase in reserves if the loans are not of a very good quality. Banks make up reserves from profit, and it is now small, many banks experience losses.

Finally, N3 is the current liquidity ratio, calculated as the ratio of liquid assets to liabilities. If banks have foreign currency obligations, it increases the base, which includes liquid assets.

These three key indicators may affect the banks' financial statements. I'm not even talking about the negative currency positions that may arise and which banks will have to strictly adjust in order to not violate the requirements of the Central Bank.

Probably the only plus in this situation is that the share of foreign currency assets in the banking system has been actively decreasing after the crisis of 2008, so the scale of the problems would be less. To date, approximately 17% of banking sector's assets is generated in foreign currency. Speaking of foreign currency loans, it can be assumed that the collapse of the ruble could lead to an increase in arrears.

– Is the lack of liquidity possible for banks of the second and third tiers?

– Yes, although the foreign currency part of the banks, especially of the third tier, is small and is present mainly in funding. I mean that many small banks attracted foreign currency deposits, which may also be an additional factor of pressure on liquidity.

– May the continued growth of the currency value lead to the fact that small banks would refuse foreign currency deposits?

– Most likely, this can really happen, though another point of growth of the dollar now appears to be passed. It is possible that banks will wait for the rollback rate in order to fix at a new level and then ‘leave’ the foreign currency. To do it now would mean to fix significant losses.

– Whether the softening of the banking system is now needed, similar to this that had been introduced in December 2014? In particular, we are talking about a reduced rate in calculating the ratios.

– Now the Central Bank carries out regulation of banks in a manual mode, and at any time any mechanism can be used. I think banks need the support in the 1Q of 2016, the most complex in terms of financial statements. So, it would be useful to establish for norms calculating the exchange rate below the current.

Of course, now it is a good reason to see who managed the currency risk properly. At the same time, it is important to maintain the system, which has undergone a serious ‘cleaning’. The Central Bank has all the opportunities to make some specifications not mandatory, but recommendatory. In addition, the government has taken a rather strict obligations concerning the implementation of the ‘Basel III’. The load on the banking system is too high, taking into account external factors.

Banki.ru, 25/01/2016