Monday, May 11 2020 21:42

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.