Yesterday, the CBR announced multiple amendments to its regulations, aimed at providing capital relief for the banking sector. The package includes, inter alia, the following measures.
The mark-to-market revaluation requirements for banks' securities portfolios will be temporarily lifted.
Averaging of FX exchange rates on a quarterly basis will be used instead of spot rates for the purpose of regulatory ratios.
The introduction of interest rate caps for retail loans will be postponed until 3Q15 (vs. initially planned 1Q15).
Deposit rate caps will also become more flexible (up to 3.5pp deviation from the market average vs. existing 2pp).
Formal provisioning requirements will be waived for restructured loans if restructuring represents a change in the loan currency or if the deterioration in a borrower’s financial standing is due to sanctions or other extraordinary situations.
Provisioning requirements will also be relaxed for certain types of long-term "investment loans" with bullet repayment schedules.
Restrictive risk weights for loans to associated leasing companies will be cancelled.
These measures effectively mean "regulatory forbearance" designed to provide at least temporary relief for banks' capital adequacy positions. Capital ratios will likely be hit by the impact of the RUB devaluation and its repercussions in the real economy. In a situation like this, selectively relaxing the regulatory requirements helps to alleviate the initial shock and give the banking sector some breathing room for portfolio management without putting them at the risk of regulatory capital shortfalls. We think this is positive for subordinated debt, in particular, as subs are usually the most sensitive to regulatory pressure.
For senior debt, we expect a separate package of supportive measures to be introduced by the CBR and the government. The State Duma has approved the first reading of amendments to banking legislation that conditionally allow the purchase of subordinated debt (newly issued) of major banks funded directly by the NWF. In addition, Kommersant reports that the government is considering more options for injecting new capital into the banking sector, including a simplified mechanism for the Deposit Insurance Agency to purchase preferred shares. According to the paper, the DIA would be able to acquire preferred shares in eligible banks in exchange for OFZ bonds (for a total of RUB 1tn for the whole programme) which would have been transferred to the Agency through direct contribution by the state. This shows that the government is ready to consider all options to defend the banking sector against market turbulence.