07.10.2008 - MDM Comment: Russia to inject Tier 2 capital in banks

Russia's Minister of finance Alexei Kudrin said today that the government decided to issue up to RUB 950 billion in subordinated loans to Russian banks. Bulk of the money - RUB 675 billion - will be injected through the Central Bank and the budget/VEB into Sberbank, VTB and Russian Agricultural Bank.

Interestingly, privately-owned banks or any other banks not owned by the state directly will also have access to that money. According to Mr. Kudrin, a bank could get a sub.loan amounting up to 15% of Tier 1 capital, but only if shareholders of a bank commit to provide a similar loan two times higher in size (30% of Tier 1 capital).

To remind, subordinated debt is junior to other debt liabilities of the bank, should have maturity of at least 5 years and should not exceed 50% of Tier 1 capital.

Formally Russian banks don't look like the ones having capital adequacy problems. Leverage (assets/equity) ratio on average is only 8 times in the sector (As of Sept 2008), which is far from high double digits seen in Europe or the US.

Still, of course the measure should support Russian banks' liquidity profile and help restore confidence. Unfortunately, the support is again skewed towards the largest and state-controlled banks. But that's is perhaps inevitable in this kind of circumstances.

07.10.2008 16:46