Definition : Subordinated credit is a special type of lending in which a banking organization that opened in Russia no later than five years ago can attract the Central Bank's financial resources to carry out its own activities for a period exceeding five years. The peculiarity of such a loan is a fixed percentage that does not change during the term of the contract and does not exceed the established refinancing rate.
As a rule, a subordinated loan is paid in a single payment after the loan term expires in the contract, and the exception is when the borrowing bank is forced to completely cease its activities, starting the liquidation process. In this case, the lender issuing subordinated loans cannot demand its funds from the insolvent borrowing bank until the financial requirements of all other lenders are fully satisfied.
Features : A domestic bank receiving a subordinated loan can fully include credit resources in the account of its additional capital for a five-year period if the agreement with the Central Bank is concluded for a longer period. If less than five years remain before the final payment of such a loan, the borrower will be able to use the funds received to increase his own capital only with restrictions. And in the case when the loan amount is more than 50% of the fixed capital of a financial institution, such a loan should be taken into account as borrowed funds.
Conditions : Currently, a subordinated loan is issued on the basis of an individual agreement, the main feature of which is the existence of a special clause on the fact that the borrowing bank cannot receive the loan ahead of schedule ahead of schedule without prior permission from the Central Bank. Only the CBR acting as a creditor can terminate the concluded loan agreement after agreeing on such actions with the borrower, or make any changes to the existing contract.
According to the current legislation, the borrowing bank can receive a subordinated loan if the following conditions are met at the same time. So, the debt repayment period must exceed a five-year period, the terms of the issue of debt bonds cannot be changed without prior approval from the Central Bank of the Russian Federation, and it is not allowed to repay ahead of time either part of the loan received, or the full body of the loan, or the interest that has accrued on it. And the interest rate itself is prescribed in the conditions for issuing a loan, and the agreements between the lender and the borrowing bank indicate the impossibility of revising it before the loan has expired.
Usually a subordinated loan is granted on approximately the same terms as other loans, and the rates for this type of loan practically correspond to the average interest on such loan programs. And if the borrowing bank is in a state of bankruptcy, the borrower will be able to receive his funds after the bankrupt satisfies the requirements of other lenders.
History : In 2008-2009, during the acute phase of the financial crisis, subordinated loans were used to maintain the stability of the Russian banking system. The role of the regulator at that time was performed not by the Central Bank of the Russian Federation, but by Vnesheconombank, which provided ruble loans to some Russian credit institutions. The first to receive such a loan was Rosselkhozbank and VTB, because the level of their activity was fully consistent with the minimum rating requirements, and the capital of these banks increased due to contributions from third parties and shareholders.