Kremlin Said to Urge Basel III Delay as Economic Crisis Deepens
Kremlin aides are urging Russia’s central bank to delay introducing tougher capital rules for lenders known as Basel III, arguing they may deepen the worst economic crisis in six years, three people familiar with the matter said.
The requirements, due to take effect Jan. 1, may force banks to cut corporate lending, prolonging a recession that was triggered by plunging oil revenue and sanctions over Ukraine, one of the people said. Noncompliance will also hurt because lenders in breach won’t be allowed to pay dividends to shareholders, including the government, so a delay may help the budget, the person said.
An Economy Ministry official proposed the Basel III delay at a meeting with Bank of Russia Governor Elvira Nabiullina and Prime Minister Dmitry Medvedev this month, one of the people said. Nabiullina, who’s tasked with safeguarding the entire financial system, rejected the initiative, according to the person.
“The central bank has already announced all easing measures and there won’t be new ones,” the regulator’s press service said by phone last week.
The rules — which tighten capital and liquidity requirements for banks, in particular the 10 designated “systemically important” by the central bank — may hurt as lenders already lack capital to maintain current business volumes, according to Irina Velieva, an analyst at Standard & Poor’s.
“Most of the large banks are loss-making in the first half of 2015, and provisioning needs continue to be high,” Velieva said. “Banks will likely need more time to be prepared for this tightening.”
The 10 systemically important banks, led by state-run Sberbank PJSC and VTB Bank, already meet initial Basel III capital requirements, Fitch Ratings said last month.
Russian lenders’ would lose 1.5 trillion rubles of capital in the likely case that the total ratio of non-performing loans rises to 10 percent from an estimated 8.5 percent now,Liza Ermolenko, an analyst at Capital Economics, said in an e-mailed note.
Banks’ profitability has eroded while lending has stagnated in the first eight months of the year, according to central bank statistics. Total loan volumes fell 0.5 percent in January-August, excluding currency revaluation, the data show.
With a month to go before the government is due to submit its 2016 budget to parliament, officials are weighing everything from raising taxes on oil companies to freezing pensions as the fiscal gap yawns the widest in five years.
President Vladimir Putin instructed the government to study tapping into some of the gains reaped by exporters from the Russian currency’s devaluation, sending oil and mining stocks tumbling. The ruble has tumbled 40 percent in the past 12 months as oil prices slumped.
While Basel III is an international move that Russia should be part of, the Finance Ministry is concerned about some of the restrictions, including the valuation of domestic and foreign government debt, given Russia’s below-investment rating, according to Deputy Minister Alexey Moiseev. The ministry has asked the central bank to discuss the issue, he said.
Putin’s spokesman, Dmitry Peskov, declined to comment on the debate over Basel III.