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%.