Russia to Increase Regulatory Capital for Banking Establishments

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Nov. 17 – Russia’s central bank and the Ministry of Finance plan to mitigate bank system risks in the country revealed during the crisis by getting rid of the market’s small players, Kommersant reports.

The strategy of bank sector development recommends increasing banks’ regulatory capital to US$8.3-US$16 million beginning 2015, which can reduce the number of crediting organizations by more than one-third.

The draft of the document will be considered in the Russia Federal Council on November 25.

A wide range of issues with the market have been revealed during the crisis and are presented in the document. Among them is a deficiency in corporate governance and risk management, an undigested concentration of loans, and a low level of responsibility among top management.

For the first time, the issue on increasing the amount of regulatory capital for banking establishments was raised by the central bank in the beginning of 2009. Since January 1, 2010 the amount of regulatory capital is established at a rate of US$3 million with a planned increase to US$6 million starting January 1, 2012. Now, according to the central bank data, the regulatory capitals of 199 small banks fall short of level of US$6 million.

A year ago, Minister of Finance Alexey Kudrin suggested increasing the amount of regulatory capital to around US$3.3 within five years. Such increasing would lead to halving the number of banks from 1000 to 500.

This fall, Deputy Minister of Finance Alexey Savatjugin stated that the banks amount of regulatory capital might be increased by the smaller amount. If the strategy of bank sector development will be accepted by parliament, Russia will get rid of one-third of its small banks.

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