ArmInfo. The Council of the Central Bank of Armenia decided to reduce the capital adequacy ratio of banks (N1 / 1 - the minimum ratio of fixed capital to risk-weighted assets - Ed.) By one percentage point - to 9%. The current standard for total capital adequacy (N1 / 2 - the ratio of total capital to risk-weighted assets) is maintained at the level of at least 12%.
This was reported to ArmInfo by the press service of the Central Bank of the Republic of Armenia and explained that the reduction of the new standard is in line with the long-term policy of the Central Bank, which ensures compliance with the principles of banking system regulation (including capital structure requirements) with the standards established by the Basel Committee. "In order to mitigate the negative consequences of the uncertainty caused by the spread of COVID-19 on economic activity and its prospects, it was decided to increase the share of additional capital in the structure of total capital, providing banks with the possibility of additional lending to the economy through attracting subordinated loans and other capital instruments. This the decision is part of the Central Bank's long-term financial stability policy and ensures a sufficient level and instruments absorbing potential risks and losses of banks, "the CBA said in a statement.
It is reported that by doing so, the Central Bank gave appropriate signals to banks on the use of formed capital buffers to ensure the continuity of banking operations. The Central Bank, guided by best international practices, has introduced various tools to counter stressful situations and absorb losses during the economic downturn. The presence of tools introduced into the banking system creates an opportunity at the time of a temporary economic downturn to allocate funds for lending to business entities, as well as resist losses arising from a stressful situation.
Similar instruments are capital buffers, established in addition to capital adequacy standards and designed to contain risks (including systemic ones) inherent in the stressful period.
The Central Bank, for the uninterrupted implementation of financing by the banks of the real sector of the economy, postponed the deadline for the implementation of two new liquidity standards established by Basel III - the liquidity coverage ratio (LCR) and the purely stable financing ratio (NSFR). New liquidity ratios will enter into force on January 1, 2021. At the same time, the Central Bank notes that the normal and current liquidity ratios that regulate the liquidity risk of banks continue to operate (N2 / 1 - min 15% - the ratio of highly liquid assets and total assets, N2 / 2 - min 60% - the ratio of highly liquid assets and liabilities up to demand - Ed.).
It should be noted that, according to the Central Bank of the Republic of Armenia, in accordance with the requirements of Basel III, premiums should have entered into force to maintain capital adequacy, a countercyclical and premium for systemically important banks. Thus, a premium to maintain capital adequacy is necessary to cover bank losses during periods of financial instability. A countercyclical allowance is necessary to cover bank losses in the event of limits on systemic risk in the banking sector, and the purpose of this allowance is to limit lending during a period of rapid economic recovery. And systemically important banks will be required to additionally calculate the premium for systemic importance in order to increase the ability to counter systemically significant banks to shocks in crisis situations. The introduction of these standards, in connection with the coronary crisis, it was also decided to postpone until January 1, 2021.
According to the Financial Rating of the Banks of Armenia as of January 1, 2020, prepared by ArmInfo IC, the average capital adequacy ratio in the banking market amounted to 27.57%, which is lower than the indicator a year ago (29.92%). Of the 17 banks operating in Armenia in annual terms, a decrease in the level of adequacy of total capital was recorded in 12.
