What is capitalization? Pre-capitalization of credit institutions

Studying the question of what is capitalization, it is worth saying that this is a procedure that enjoys great popularity as a dominant means of combating financial and economic crises. Many states in the period from 2008 to 2009 provided financial institutions with first-tier capital. Today, this policy is practiced in Russia. Back in 2008, financial assistance to private and public banks and a number of commercial companies helped the country solve numerous problems.

How is the infusion of funds?

The introduction of funds into problem banks was carried out by buying state preferred shares and other financial instruments that corresponded to the rank of the first level. Pre-capitalization of credit institutions by the state through purchases of ordinary shares of financial institutions is much less frequent. Considering the statistics, we can say that of the fifty largest banks in America during the crisis only 23 received state aid. In Europe, assistance was provided only to 15 institutions, which corresponds to 76% and 40% of the pre-crisis capitalization of the banking segment. According to the information provided by the IMF, the average program of capitalization at the state expense in the spring of 2009 amounted to 3% of GDP.

Pre-capitalization in Russia

Considering what such capitalization is, it is necessary to look at the situation in Russia. President Putin signed a law on the capitalization of financial institutions in the amount of 1 trillion rubles by issuing federal loan bonds (federal loan bonds). According to the authors of the law, the property contribution must be paid to the Deposit Insurance Agency. It, in turn, will redirect funds to banks to fulfill their obligations in the aspect of repayment of debts to depositors, loans and bonded debts. The funds will be sent to preferred shares. The government will transfer the OFZ insurance agency to the order indicated above, which will allow it to support domestic banks at the time of the crisis.

What opportunities does the solution offer?

The bill, according to which capitalization of credit institutions in Russia will be implemented, was prepared very long ago. This is due to the fact that as a result of the deterioration of the economic situation in the country due to sanctions from the West, the financial sector was hit hard. Many experts predict even a default in this direction. The money allocated for the rehabilitation of the financial segment will be tightly controlled. This was announced at the scheduled meeting by the chairman of the Golikov Counting Chamber. Forecasts of the Minister of Finance Siluanova suggest that the bill after full implementation should increase the total amount of the country's banking capital by no less than 13%. The total amount of loans in the short term should increase by no less than 15-20%. It was announced that all DIA revenues from OFZ will be diverted to the federal budget.

When does the bank need support?

Each bank has its own capital, which consists of the personal funds of a financial institution. Within the framework of financial structures, there are assets that attract investors and ensure that the enterprise belongs to a certain category. The bank collects capital at the expense of attracting investors' funds - both individuals and commercial structures. He's borrowing. In this case, the financial institution gives loans at a higher interest rate. The difference between paying interest on loans and interest on the loan and provides liquidity of the enterprise. In the crisis, with a sharp outflow of capital from Russia, many borrowers of the bank not only did not return the debt, but they could not even repay the interest on it. Consequently, the budget was insufficient and the bank is no longer able to fulfill its obligations to investors. The situation is helped by the capitalization of banks. What is it, to understand simply. In fact, in a simplified format - this is the state's compensation of unreturned loans in order to keep the liquidity of the financial institution at a high level.

Why does the government spend capitalization?

Considering from the government's point of view what is capitalization, the procedure can be called an attempt by the state to avoid panic. If financial institutions do not massively fulfill their obligations due to low capital adequacy, this will cause excitement. People will massively withdraw funds from the funds and withdraw deposits, which can not only lead to the devastation of the budget, but also become an incentive to strong training leaps. The issue of a subordinated loan, which will be confined to the main capital and will act as a guarantor of the stability of the entire banking system, can be called the word "capitalization". And this procedure has been subjected to more than one bank today. Thus, the capitalization of Delta Bank, Rosselkhozbank, VTB was implemented. And these are just a few of the list of financial structures that the state supports. In accordance with the legislation, the obligations under the subordinated loan are fulfilled in the last turn.

What in fact will subordinated loans give?

Deputy Chairman of the Central Bank of Russia Mikhail Sukhov says that the capitalization of Rosselkhozbank, in fact, like other financial institutions, should have a downward impact on the interest rate in the real economic sector. In the future, there will be a stabilization between the economic sector of activity and the financial market of the country, which is now on the verge of default. Funds that will move from DIA to banks should not be taxed. The Russian government practiced this scheme to support the state's financial system in 2008, which produced very impressive results. The decision will allow to avoid bankruptcy of many credit organizations, will save many investors from losses.

Which credit institutions can count on government support?

Having dealt with the question of what is capitalization in a bank, it is worth paying attention to the fact that not all financial institutions receive state support. The list of banks is selected and approved by the DIA. According to RBC, 27 institutions with a capital of at least 25 billion rubles can count on subordinated loans. Of the officially allocated to support the financial sector 1 trillion rubles actual assistance will be only 830 billion. The main criterion for choosing enterprises will be their willingness to substantially expand lending to the real economic sector in priority areas for the government. As it was repeatedly stated, capitalization of banks (what is it, discussed above) is not focused on solving the complexities in troubled financial institutions. The material support has a direct purpose.

Conditions to be followed by the bank

The list of lucky ones included financial institutions whose activities meet the established standards. This is the availability of capital in the amount of 25 billion rubles, which was mentioned above. Moreover, the candidate bank had to actively develop lending to the real sector of the economy over the past two years. The extension of the direction should be at least 12%. In accordance with the selection criteria, the financial institution should be rigidly approaching the remuneration of its employees: limited wage growth, minimum remuneration to board members and the board of directors. A tough policy should also act in the aspect of calculating dividends to investors. According to preliminary estimates, assistance will be added to the following financial institutions:

• "VTB" will receive 307 billion rubles.
• The reserve point of VTB is 193 billion rubles.
• Retail "daughter" of "VTB24" - 65.8 billion rubles.
• "Bank of Moscow" - 49 billion rubles.

Government's anti-crisis plan

When studying the question of what is capitalization, it is worth noting that this term applies not only to credit institutions. The material aid of the state can be intended for commercial companies, for any other organizations whose activities will help to restore the economy of the country. As part of the program aimed at combating the crisis, it is planned to spend about 2.3 trillion rubles. The planned capitalization of the company, for which, by the way, the financial institution has yet to compete, has already been activated at the beginning of the first quarter of this year. Banks that receive support, have undertaken a number of obligations. They should increase the volume of mortgage lending in the amount of at least 1% per month, increase the number of loans for small and medium-sized businesses. Moreover, financial institutions should increase their capital by an amount equal to half of the received material assistance. The lifting of wages to all employees of the financial institution is prohibited for the next three years.

In which sectors are subordinated loans to be issued?

As already known, financial assistance will be provided to no fewer than 30 banks in Russia, including VTB. Pre-capitalization will cover the following areas:

• Agriculture - in the amount of 10 billion rubles.
• The automotive industry is 5 billion. Means exclusively for the continuation of the implementation of the waste management program.
• Credit subsidies to enterprises - 5 billion.
• Regions will receive a billion to purchase cars that run on gas engine fuel.

In the statistical state, it is planned to leave expenditures for the defense of the country, the social sector. To fight unemployment, it is planned to give 82.2 billion rubles. Initially, it was planned to invest at least 100 billion in the restoration of the state's economy, but then it was decided to limit it to only 23 billion rubles for active sectors.

Gazprom to help

In addition to issuing subordinated loans to financial institutions, the president repeatedly raised the issue that the capitalization of Gazprom is no less important. The Russian president had the imprudence of officially pledging material support from the state. In fact, the bill was rejected, because it was considered that a large corporation is able to independently find money to implement a project to build a pipeline to transport domestic gas to China. To implement the project, it is necessary in general to spend about 55 billion, 25 of which have already been promised by China itself, Russia's partner in the BRICS and SCO associations. The Ministry of Finance of Russia not only doubts the rationalism of the project, it is confident in its unprofitableness, and VEB's capitalization is much more successful. In addition, the meeting of government members sounded phrases that the state's expenses are constantly growing, and now is not the time to spend part of the state budget to support dubious projects.