What is additional capitalization? Additional capitalization of credit institutions

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Studying the question of what capitalization is, it is worth saying that this is a procedure that is very popular as the dominant means of dealing with financial and economic crises. Many governments provided Tier 1 capital to financial institutions between 2008 and 2009. Today this policy is practiced in Russia. Back in 2008, financial assistance to private and state banks and a number of commercial companies helped the country solve numerous problems.

How is the infusion done?

Introduction of funds into troubled banks was carried out through the purchase by the state of preferred shares and other financial instruments that corresponded to the rank of the first level. Additional capitalization of credit institutions by the state through the purchase of ordinary shares of financial institutions is carried out much less frequently. Considering the statistics, we can say that out of fifty of the largest banks in America during the crisis, only 23 received state assistance. In Europe, only 15 institutions were assisted, corresponding to 76% and 40% of pre-crisis capitalizationbanking segment. According to the information provided by the IMF, the average program of additional capitalization at the state expense already in the spring of 2009 amounted to 3% of GDP.

Recapitalization in Russia

When considering what additional capitalization is, we need to look at the situation in Russia. Russian President Putin signed a law on additional capitalization of financial institutions in the amount of 1 trillion rubles by issuing OFZ (federal loan bonds). According to the authors of the law, the property contribution should be made to the Deposit Insurance Agency. It, in turn, will redirect funds to banks to fulfill their obligations in terms of paying off debts to depositors, loans and bond debts. The funds will be channeled into preferred shares. The government will place at the disposal of the insurance agency OFZs in the amount indicated above, which will allow it to support domestic banks at the time of the crisis.

What opportunities does the solution open up?

The bill, according to which the additional capitalization of credit institutions in Russia will be carried out, has been prepared for a very long time. This is due to the fact that as a result of the deterioration of the economic situation in the country due to sanctions from the West, the financial sector was hit. Many experts even predict a default in this direction. The money allocated for the rehabilitation of the financial segment will be tightly controlled. This was officially announced by the chairman of the Accounts Chamber Golikova at a scheduled meeting. Minister of Finance forecastsSiluanov say that the bill, after full implementation, should increase the total amount of the country's banking capital by at least 13%. The total amount of lending in the short term should increase by at least 15-20%. The fact was announced that all DIA income from OFZ will be redirected to the federal budget.

When does a bank need support?

Each bank has its own capital, which consists of the personal funds of the financial institution. Within the framework of financial structures, there are assets that attract investors and ensure that the enterprise belongs to a certain category. The bank collects capital by attracting funds from investors - both individuals and commercial structures. He borrows. At the same time, the financial institution gives loans at higher interest rates. The difference between the payment of interest on loans and interest on a loan ensures the liquidity of the enterprise. In the conditions of the crisis, with a sharp outflow of capital from Russia, many borrowers of the bank not only did not repay the debt, but could not even pay off the interest on it. Consequently, the budget insufficiency has formed and the bank is no longer able to fulfill its obligations to investors. Capitalization of banks helps to change the situation. What it is is easy to figure out. In fact, and in a simplified format, this is compensation by the state of bad loans in order to keep the liquidity of a financial institution at a high level.

Why is the government recapitalizing?

Considering from the point of viewthe question of what capitalization is, the procedure can be called an attempt by the state to avoid panic. If financial institutions fail to meet their obligations en masse due to low capital adequacy, this will cause unrest. People will massively withdraw funds from funds and withdraw deposits, which can not only lead to an empty budget, but also become an incentive for strong jumps in rates. The issuance of a subordinated loan, which will be timed to the fixed capital and will act as a guarantor of the stability of the entire banking system, can be called the word "recapitalization". And more than one bank has been subject to this procedure today. Thus, additional capitalization of Delta Bank, Rosselkhozbank, VTB was carried out. And these are just a few of the list of financial structures supported by the state. In accordance with the law, obligations under a subordinated loan are fulfilled last.

What will subordinated loans really do?

Deputy Chairman of the Central Bank of the Russian Federation Mikhail Sukhov says that the additional capitalization of Rosselkhozbank, in fact, like other financial institutions, should have a downward effect on the interest rate in the real economic sector. In the future, stabilization will be carried out between the economic sector of activity and the country's financial market, which is now on the verge of default. Funds that will move from the DIA to banks should not be subject to taxation. Russian Governmentpracticed this scheme to support the financial system of the state in 2008, which brought very impressive results. The decision will help avoid the bankruptcy of many credit institutions, save many depositors from losses.

Which credit institutions can count on government support?

Having de alt with the question of what additional capitalization in a bank is, it is worth paying attention to the fact that not all financial institutions receive state support. The list of banks is selected and approved by the DIA. According to RBC, 27 institutions with a capital of at least 25 billion rubles can count on subordinated loans. Of the 1 trillion rubles officially allocated to support the financial sector, actual assistance will amount to only 830 billion. The main criterion for selecting enterprises will be their willingness to significantly expand lending to the real economic sector in priority areas for the government. As has been repeatedly stated, the additional capitalization of banks (what it is, discussed above) is not focused on solving the difficulties in problem financial institutions. Material support has a direct purpose.

Conditions to be followed by the bank

The list of lucky ones includes financial institutions whose activities meet the established standards. This is the presence of capital in the amount of 25 billion rubles, which was described above. Moreover, over the past two years, the applicant bank had to actively developlending to the real sector of the economy. The extension of the direction must be at least 12%. In accordance with the selection criteria, the financial institution must take a tough approach to the remuneration of its employees: limited salary growth, minimum remuneration for members of the board and board of directors. A tough policy should also apply in terms of paying dividends to investors. According to preliminary estimates, assistance will be credited to the following financial institutions:

• VTB will receive 307 billion rubles.
• Reserve point "VTB" - 193 billion rubles.
• VTB24 retail subsidiary - 65.8 billion rubles.
• "Bank of Moscow" - 49 billion rubles.

Government's anti-crisis plan

Studying the question of what additional capitalization is, it is worth noting that this term is used not only in relation to credit institutions. Financial assistance from the state may be intended for commercial companies, for any other organizations whose activities will help restore the country's economy. As part of the program aimed at combating the crisis, it is planned to spend about 2.3 trillion rubles. The planned additional capitalization of the company, for which, by the way, the financial institution still has to fight, has already been activated at the beginning of the first quarter of this year. Banks that will receive support have made a number of commitments. They must increase the volume of mortgage lending in the amount of at least 1% per month, increase the number of loans for smalland medium business. Moreover, financial institutions must increase their capital by an amount equal to half of the material assistance received. Raising wages for all employees of a financial institution is prohibited for the next three years.

In what sectors are subordinated loans planned?

As is already known, material assistance will be provided to at least 30 Russian banks, including VTB. Additional capitalization will cover the following areas:

• Agriculture - in the amount of 10 billion rubles.
• Auto industry - 5 billion. Funds solely for the continuation of the waste management program.
• Credit subsidies to enterprises - 5 billion.
• Regions will receive a billion for the purchase of cars running on natural gas fuel.

In the statistical state, it is planned to leave the country's defense spending, the social sector. It is planned to allocate 82.2 billion rubles to fight unemployment. Initially, it was planned to invest at least 100 billion rubles in the restoration of the state economy, but then it was decided to limit it to only 23 billion rubles for active sectors.

Gazprom to help

In addition to issuing subordinated loans to financial institutions, the President has repeatedly raised the issue that additional capitalization of Gazprom is no less important. The President of Russia had the imprudence to officially promise material support from the state. In fact, the billwas rejected, as they considered that a large corporation is able to independently raise money for the implementation of a project to build a pipe to transport domestic gas to China. To implement the project, it is necessary to spend on the whole about 55 billion, 25 of which has already been promised by China itself - Russia's partner in the BRICS and SCO associations. The Russian Ministry of Finance not only doubts the rationalism of the project, it is confident that it will be unprofitable, and the additional capitalization of VEB looks like a much more successful project. In addition, at a meeting of government members, phrases were heard that state spending is constantly growing, and now is not the time to spend part of the state budget on supporting dubious projects.