OREANDA-NEWS. February 26, 2009. The Bank of Russia made it clear bankers should not expect it to lower the capital adequacy ratio, while the mechanism for entering the capital of private banks was recognized as not market-based. The idea of buying stocks of private banks with an obligation imposed on their current owners to buy back these shares from the state was viewed as one of the mechanisms aimed at increasing the capitalization of lending institutions, but Russian authorities limited action only to support via subordinated loans. However, bankers proposed to resume discussions on this issue. “We are against the buyback of securities by current shareholders,” said Mikhail Sukhov, director of the central bank’s department for licensing and rehabilitation of lending institutions.

This could “substantially weaken financial discipline on the market”, since current shareholders will have no incentives to keep their banks afloat independently, whereas businesses should be materially liable, Sukhov said.

CBR has not yet given an official reply to the bankers regarding another proposal they made, i.e. seeking to reduce the capital adequacy ratio from 10% to 8%, but the monetary authority thinks this was to be done either “yesterday” or “tomorrow”. For the record, banks faced additional capitalization problems because of a spike in bad debts amid the crisis. “Decisions of this kind cannot solve strategic problems of seeking capital,” Sukhov said adding the capital adequacy ratio, which shows a bank’s stability, does matter when debt markets are open, but they are not available right now. The proposal is 18 to 24 months “late” and at present “it is early”, the head of the CBR department thinks.