What is decapitalization of banks? This is the process of withdrawing his own capital for purposes not related to the production development of this financial institution.
Decapitalization of Russian banks
According to experts, in the near future, deterioration in the quality of the loan portfolio and a decrease in its value should lead to decapitalization of banks. At the moment, the deficit of capital of Russian banks is about 2% of the gross domestic product. Decapitalization of banks is one of the signs of a crisis in the banking sector.
The current state of affairs may deteriorate significantly, given the concealment by banks of loans to borrowers affiliated with them. In difficult situations, these clients may not be ready to service their debt obligations. Even in the winter of 2014, a picture emerged when a significant part of financial institutions showed a rapid decline in the level of capital adequacy.
This process stopped at the minimum indicators allowed by the Central Bank, and then stabilization unexpectedly ensued, which, in turn, was achieved by improving the quality of the loan portfolio. At the same time, these financial institutions experienced a decrease in their own reserves, which could not but arouse suspicion.
What is the decapitalization of banks nationwide? In these circumstances, the Russian government is faced with a difficult choice. One of the solutions to the problem could be the capitalization of the banking sector through taxes and fees. On the other hand, you can simply refuse to help those banks whose management allowed this situation to develop. In this case, the state may well encounter problems caused by the so-called “domino effect”.
Which exit?
In the process of studying the question of what banks decapitalization is, it is necessary to take into account the fact that it is often quite justified. The period of destabilization of the foreign exchange market provokes a whole set of risks for Russian banks. So, they are threatened by such a phenomenon as the massive withdrawal of their own funds by depositors of these financial institutions. In addition, this threat is exacerbated by the likely launch of a process of decapitalization of banking institutions.
To avoid such forecasts, banks need to tackle the accumulation of a liquidity pillow, which will consist of cash placed on correspondent accounts and on deposits of the regulator. In addition, you can use funds held in foreign financial institutions. In the next section, we will find out what decapitalization of a bank is based on VTB's example.
Decapitalization of VTB
One of the largest state-owned banks also faced capital shortages. The decapitalization of VTB Bank led to the fact that the leadership of the financial institution requested assistance from the government of the Russian Federation. It was about the amount of 200 billion rubles. Moreover, about 70 billion was already required in 2015. VTB had three opportunities to get this money from the state.
The first involved the allocation of funds from the national welfare fund and through the acquisition of securities from the Ministry of Finance. The second option is the purchase of bonds of state corporations with funds from Vnesheconombank. The third possibility is to use the money of the NWF to finance infrastructure projects through VTB.