Tuesday, June 15 2021 20:54
Karine Melikyan

Central Bank of Armenia is still refraining from introducing the  maximum debt burden ratio, but from July 2021 it will introduce the  LTV standard

Central Bank of Armenia is still refraining from introducing the  maximum debt burden ratio, but from July 2021 it will introduce the  LTV standard

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. 


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