2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
What is decapitalization of banks? This is the process of withdrawing its own capital for purposes not related to the production development of this financial institution.
Decapitalization of Russian banks
According to experts' forecasts, in the near future the deterioration of the quality of the loan portfolio and the decline in its value should lead to the decapitalization of banks. At the moment, the capital deficit of Russian banks is about 2% of the gross domestic product. The decapitalization of banks is one of the signs of the existence of a crisis in the banking sector.
The current state of affairs may noticeably worsen, given the concealment by banks of lending to borrowers affiliated with them. These clients in difficult situations may not be ready to service their debt obligations. Back in the winter of 2014, the following picture emerged, when a significant part of financial institutions showed a rapid decline in the level of capital adequacy.
This process stopped at the minimum allowed by the Central Bank, and then suddenly stabilized, which, in turn, was achieved by improving the quality of the loan portfolio. At the same time, these financial institutions experienced a decrease in their own reserves, which could not but arouse suspicion.
What is the decapitalization of banks nationwide? In these circumstances, the government of the Russian Federation is faced with a difficult choice. One of the solutions to the problem may be the additional capitalization of the banking sector through taxes and fees. On the other hand, you can simply refuse to help those banks whose management allowed this situation to develop. In this case, the state may well face problems caused by the so-called "domino effect".
Which way out?
In the process of studying the question of what decapitalization of banks is, it is necessary to take into account the fact that it is often quite justified. The period of destabilization of the foreign exchange market provokes a whole range of risks for Russian banks. Thus, they are threatened by such a phenomenon as the massive withdrawal of their own funds by depositors of these financial institutions. In addition, this threat is intensified by the likely launch of the process of decapitalization of banking institutions.
To avoid such forecasts, banks need to start accumulating a liquidity cushion, which will consist of funds placed on correspondent accounts and on deposits of the regulator. In addition, you can use funds held in foreign financial institutions. In the next section, we will find out what decapitalization of a bank is on the example of VTB.
Decapitalization of VTB
One ofthe largest state-owned banks also faced the problem of capital shortages. The decapitalization of VTB Bank led to the fact that the management of the financial institution requested assistance from the Russian government. It was about the amount of 200 billion rubles. Moreover, about 70 billion were required already in 2015. VTB had three opportunities to get this money from the state.
The first provided for the allocation of funds from the National We alth Fund and through the purchase of securities from the Ministry of Finance. The second option is the purchase of bonds of state corporations at the expense of Vnesheconombank. The third possibility is to use the NWF money to finance infrastructure projects through VTB.
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