Jul 16, 2013
London, July 11th 2013 - Basel III will be credit positive for Russian banks as it will improve the quality of the banks' capital, says Moody's Investors Service in a new Special Comment published today, because the banks will have to issue new contingent capital of higher quality to replace legacy subordinated debt.
However, Moody's also believes that Basel III has credit-negative implications for the junior creditors of the banks, due to the introduction of burden sharing for Tier 2 and hybrid instruments.
The report, "Russian Banks: Basel III Rules Will Improve Quality of Capital" is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
Russian banks started to implement Basel III guidelines on capital in March this year, with full rollout expected in October. Based on Moody's estimates, the Basel III-related capital needs of the 20 largest Russian banks are limited: these 20 banks will need to raise around $1.5-2.5 billion every year until 2017 to fully replace phased-out subordinated debt with new higher-quality instruments.
The major Basel III-related benefit for Russian banks will come from improved quality of capital. Russian banks will need to issue contingent (bail-inable) instruments to replace legacy subordinated debt that will be phased-out. Moody's estimates that this new contingent capital will be of higher quality than the former plain vanilla Tier 2 and expects that a handful of banks will need to raise a small amount of core capital from shareholders or the markets to comply with the new standards. As such, Basel III will primarily result in qualitative improvements in the capital structure, rather in additional capital.
Despite Moody's credit-positive view on Basel III for Russian banks, the rating agency considers that the introduction of burden-sharing for Tier 2 and hybrids is credit-negative for junior creditors. Similar to the rating agency's global view, the introduction of the bail-in concept in Russia signals that the government is less inclined to support this class of creditors under the new regime.
Re-disseminated by The Asian Banker