The term "commercial bank" arose at the dawn of banking. This was due to the fact that credit organizations then served mainly trade, and only then - industrial production. Today, a commercial bank is an institution that performs up to 200 financial transactions, the main of which are the receipt of funds for deposits, lending, and settlement and cash services. Any kind of activity of such organizations is impossible without the presence of capital. Let's take a closer look at this concept.
What is the capital of a commercial bank?
Capital is the sum of all sources of funds of the bank. From here it is divided into two large categories:
1. Own banking.
2. Attracted:
- deposit - funds held in the accounts of clients of a banking organization;
- non-depository - funds received in bank vaults from repayment of loans by its creditors, as well as from the sale of its own debt obligations.
Adequacy of a bank’s capital is an essential indicator of its reliability; determines the ability to cope with possible financial problems on their own, and not to the detriment of their customers. For Russian credit organizations, a capital adequacy ratio of H1.0 has been introduced. Its permissible minimum value is 8%. If H1.0 of any bank falls below 2%, it urgently revokes the license.
We will now deal with the equity capital of Russian banks.
The concept of "equity"
Equity is, in turn, the sum of several components:
- statutory funds;
- Extra capital;
- reserve fund;
- insurance reserves;
- special funds;
- profit not distributed during the reporting period.
Banks' equity on average covers 10-20% of their total cash requirements. This is due to the following:
- Banks are intermediaries in the financial market, they work primarily with attracted, rather than with their own funds.
- Banking assets are highly liquid and quickly marketable, which is why large amounts of equity are not needed.
- The likelihood of a sharp decline in the share of borrowed funds is very small - a massive withdrawal by the population of money from deposits is unlikely due to the existing deposit insurance system.
Let us analyze each component of the bank’s equity in more detail.
Registered capital
The formation of the authorized capital is through the issuance of ordinary and preferred shares. All securities must be registered. The first issue necessarily consists only of ordinary shares and is distributed among the founders, subsequent issues - among citizens of the Russian Federation and non-residents, constituent entities of the Russian Federation, non-governmental institutions and state enterprises.
The difference between ordinary and preferred securities is as follows:
- The owner of an ordinary share is entitled to vote at a meeting of shareholders and is entitled to receive dividends. However, payments to him are accrued only after dividends are accrued to owners of preferred shares.
- The owner of this privileged security is not entitled to vote at meetings of shareholders, but he is paid a fixed amount of dividends, and he can express a property claim in court when the bank is liquidated.
If the bank is a unit, then its authorized capital consists of the contribution of certain shares by the founders. In the case when it is established with the attraction of foreign investments, the content of a certain part of it in currency is allowed.
Reserve and other funds
The purpose of creating a reserve fund is to recover financial losses from active operations. If the amount of income received is lower than planned, then the funds from here are used to pay dividends on preferred shares and interest on bonds.
Other funds are formed only due to bank profits. The procedure for their creation and use is strictly regulated by legislative acts of the Russian Federation.
Extra capital
Additional capital represents the total value, which is formed by:
- The price of property received by the bank for free use from individuals and legal entities.
- Share premium - arises when the value of a share when it is issued is above par.
- The increase in the value of the property of a banking organization during its subsequent revaluations.
Insurance reserves
Insurance reserves must be formed at the expense of the bank’s profit - this is attributed to the legislation. Their main purpose is to smooth out the negative financial consequences of reducing the value of any assets.
This category consists of reserves:
- For possible losses on loans.
- According to calculations with debtors.
- Under the possible depreciation of stocks and bonds and so on.
retained earnings
Income not distributed during the reporting period, the profit remaining after paying off the entire tax burden can rightfully be attributed to the own funds of the credit institution. The bank can manage this income in its own interests.
Equity Functions
Bank equity performs a number of important functions:
- Revolving - a banking organization invests customer funds in a number of profitable operations, which brings income both to itself and to investors.
- Operational - it is equity that is intended to be the main source of monetary resources of a credit institution.
- Insurance - own funds help the bank stay afloat in the event of financial difficulties.
Banks and maternity capital
In conclusion, we will talk about maternity capital - financial support for families, a form of government stimulation of raising the birth rate. Naturally, it does not apply to the funds of the bank, but is the property of its client. This amount, which for 2017 is 453,026 rubles, is paid to parents or adoptive parents after the birth or adoption of a second child. The registered certificate "Maternity capital" can be used for the following:
- Formation of the funded part of the parent's pension.
- Improving the living conditions of the family.
- Payment for child's education.
We list the main banks working with maternity capital:
- DeltaCredit - a maternity certificate can be used for early repayment of a mortgage.
- UniCredit - capital is used to repay a loan when buying a home in the secondary market.
- Sberbank - a certificate is used not only to pay for an existing mortgage loan to buy an apartment in a new building or in the secondary market, but also to make an initial payment.
- "VTB-24" - maternity capital can be both an initial contribution and the amount to repay an already taken mortgage.
- "Discovery" - here a family certificate can only partially repay a mortgage.
Bank capital is the amount of equity, which consists of several elements. In relation to credit organizations, it has a number of features and characteristic functions, which we also discussed in this material.