Friday, February 14 2020 21:03
Karine Melikyan

Introduction of Basel III capital adequacy buffers will further  strengthen the stability of Armenia`s banking system 

Introduction of Basel III capital adequacy buffers will further  strengthen the stability of Armenia`s banking system 

ArmInfo. The introduction of Basel III capital adequacy buffers will further strengthen the stability of the banking system of Armenia and increase the ability  to withstand any shocks in various economic situations. This opinion  was expressed by Chairman of the Union of Banks of Armenia (UBA),  Chairman of the IDBank Board, Mher Abrahamyan, answering ArmInfo's  question regarding the additional requirements for bank capital  adequacy introduced by the Central Bank (the matter concerns three  buffers to the standard - ed. note).

He noted that this toolkit has already been envisaged by the Central  Bank, but will be introduced in stages.  "Banks and the Central Bank  discussed this issue for a long time and ultimately came to the  decision to give market participants sufficient time to prepare for  work in accordance with these requirements. I note that these buffers  will be introduced in stages. I believe that banks are ready for such  a course of events.  But, answering your next question, I should note  that with this tightening of the capital ratio I exclude possibility  of banks' leaving the market- everyone has enough capital and they  can handle the extra buffers, "M. Abrahamyan stated.  However, he  noted that after the consolidation of the banking sector in  2015-2016, since 2017, banks have sufficient capital and  opportunities to ensure compliance with these new requirements. On  the other hand, he noticed that these buffers are aimed at further  strengthening the stability of the banking system and increasing the  ability to withstand any shocks in crisis situations.

As noted in the report of the Central Bank "Financial Stability  2018", published in June 2019, from January 2020, in accordance with  the requirements of "Basel III", capital conservation buffer, a  counter-cyclical buffer, and a buffer for systemically important  banks will come into force. Moreover, the first two will apply to all  banks, and the third - to systemically important banks.

Capital conservation buffer is necessary to cover bank losses during  periods of financial instability. Starting from 2020, this indicator  will be set at 0.5%, with a phased increase to 2.5%.

Countercyclical buffer is necessary to cover bank losses in the event  of a systemic risk limit in the banking sector. The purpose of this  buffer is to limit the volume of loans in the period of a sharp rise  in the economy. This buffer will range from 0% to 2.5%.

From January 2020, systemically important banks will be required to  additionally calculate a systemic value buffer in the amount of 0.5%  of risk-weighted assets with an increase annually to reach 1.5% from  January 1, 2023. The purpose of this buffer is to increase the  possibilities of countering systemically important banks to shocks in  crisis situations.

The report notes that the Central Bank has already developed the  "Procedure for applying and calculation of buffers to the capital  adequacy ratio", which entered into force in April 2019. This order  is aimed at improving the efficiency of macro-prudential policies and  strengthening the ability of banks to withstand shocks in various  economic situations.

According to the Express Ratings of Banks of Armenia, prepared by  ArmInfo IC, as of Jan 1, 2020, on average in the banking market the  capital adequacy ratio was 27.57%, which is lower than a year ago  (29.92%). Of the 17 banks operating in Armenia, a y-o-y decrease in  the level of capital adequacy was recorded in 12. It should be noted  that the capital adequacy ratio (N1) for Armenian banks is set by the  regulator at a level of at least 12%. 


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