ArmInfo.The Central Bank of Armenia so far refrains from introducing the maximum debt burden ratio due to the difficulties of accounting in the calculation of the recorded and unaccounted income of a potential borrower. But discussions continue and various kinds of calculations are carried out to find the correct option for using this standard.
On June 15 at a press conference, answering a question from ArmInfo, the Chairman of the Central Bank of Armenia Martin Galstyan said this, stating that instead from July 2021 the LTV standard (Loan-to-Value Ratio - loan / pledge) will be introduced.
With regard to the maximum debt burden ratio (DBR), he explained that the Central Bank is trying to introduce such a mechanism so as not to put banks in a hopeless position. "But on the other hand, we understand that the introduction of this standard for some types of loans, such as mortgages, is very important. We are working on this task, but we want to be as careful as possible so as not to harm and not introduce a mechanism that is far from reality."
When asked by ArmInfo about the introduction of Basel requirements - three premiums to the capital adequacy ratio, one of which is the countercyclical capital buffer (CCyB) - which has been operating since August 2020 at the level of 0%, M. Galstyan noted that the Central Bank does not yet see the need to introduce capital maintaining capital adequacy and premiums for systemically important banks, and still does not consider it appropriate to raise the CCyB from zero. At the same time, he noted that if there are preconditions, the Central Bank will introduce these premiums. In the meantime, the capital buffers of the banking sector are assessed as sufficient to maintain the stability of the financial system.
To note, in 2021, the Central Bank of Armenia introduced new prudential liquidity ratios recommended by Basel III - short-term (LCR - Liquidity Coverage Ratio) and long-term (NSFR - Net Stable Funding Ratio). These measures, along with increased capital requirements, were proposed for introduction long before 2020 and were periodically postponed. The liquidity coverage ratio (LCR - N23) shows what proportion of the bank's liquid assets constitute of the amount required to cover, within 30 days, the increased outflow of funds that occurs in the banking system in crisis conditions. It reflects the bank's level of resilience to short-term liquidity shocks - a phenomenon typical of crisis periods, when there is a significant outflow of customer funds. And the standard of net stable funding (NSFR - N24) determines the minimum level of the bank's liquidity over the horizon of one year and is calculated as the ratio of the amount of available stable funding to the amount of required stable funding. The main goal of NSFR is to help mitigate one of the systemic risks to financial stability associated with short-term funding of banks, balance the assets and liabilities of banks by maturity, create incentives for banks to attract long-term deposits and reduce dependence on short-term financing. Both standards will be gradually increased. So, the minimum LCR (the ratio of highly liquid assets to purely cash outflow) is set at 60% with the effect of this level until June 30, 2021, then from July 1 to December 31, 2021 the level will be increased to 80%, and from January 1, 2022 at the 100% level. In the same time frame and at the same levels, the NSFR standard (the ratio of stable funds available to the bank to the required stable funds of financing) will change.