Several changes have been made to the requirements applicable to subordinated debt instruments issued by Russian banks.
Further amendments to the Bank of Russia’s Regulation 395-P, “On the Methodology of Determination of the Amount and Assessment of Sufficiency of the Capital of Credit Organizations (Basel III)”, have been published. The amendments took effect on March 30 and make the following changes to the requirements applicable to subordinated debt instruments issued by Russian banks:
- introduce an option for a bank to repay a subordinated loan using Russian federal bonds;
- introduce the ability of a bank to include subordinated loans with no defined agreement term or subordinated bonds with no defined repayment term into the calculation of a bank’s additional Tier 1 capital;
- introduce the right of a bank to unilaterally repudiate payment of interest under any subordinated additional Tier 1 capital instrument;
- specify a maximum interest rate under subordinated debt instruments of 15% for ruble-denominated instruments and 10% for foreign currency–denominated instruments;
- introduce the ability of the Bank of Russia to demand that a bank convert its subordinated debt instrument into its equity if the bank’s core Tier 1 capital adequacy ratio is below 2% for six or more business days within a 30-day period or if the Central Bank Supervision Committee has approved a plan for the Deposit Insurance Agency to take certain bankruptcy-prevention measures for the bank;
- specify that the required amount of subordinated debt to convert into equity for recovering a bank’s core Tier 1 capital level is an amount that would bring the ratio up to at least 5.5%; and
- introduce an option for banks to include subordinated debt instruments related to pension savings in nonstate pension funds in the calculation of their regulatory Tier 2 capital.
In addition, the amendments extend the time period for filing conversion documents with the registrar to 45 business days and introduce an obligation to publish information on trigger events on the Bank of Russia’s official website.
For more information on the Basel III requirements applicable to Russian banks, which became effective on 1 March 2013 pursuant to Regulation 395-P, see our 6 March 2013 LawFlash, “Bank of Russia Adopts Basel III Regulation” and our 18 December 2013 LawFlash, “Amendments to Bank of Russia’s Basel III Requirements Published”.