Basel III


On 28 December 2012 the Central Bank issued Regulation No. 395-P “On the Method of Calculation of the Amount and Assessment of Adequacy of the Net Worth (Capital) of Lending Organizations (Basel III).”

The Regulation was registered by the Ministry of Justice on 22 February 2013.

The Regulation establishes the method for the calculation of the amount and assessment of the capital adequacy of Russian banks in accordance with the international banking standards envisaged in Basel III.

The Regulation defines the net worth (capital) as the sum of the core capital (consisting of common equity Tier 1 and additional Tier 1 capital) and additional capital (Tier 2 capital). Respectively, it introduces the following ratios (although without specifying the minimum thresholds): the common equity ratio (N 1.1), the core capital ratio (N 1.2) and the net worth (capital) ratio (N 1.0).

Banks are required to submit to the Central Bank reports reflecting the calculation of such ratios starting from reports as of 1 April 2013. Subordinated instruments (subordinated loans, bonds, deposits) attracted after 1 March 2013 can make up part of the bank’s capital if they meet certain eligibility criteria.

Generally, to be eligible subordinated instruments must provide for the conversion of a bank’s subordinated debt into its ordinary shares and/or debt write-off in cases where the bank’s common equity ratio falls below a certain level (6.4 percent – for inclusion in Tier 1 capital, 2 percent – for inclusion in Tier 2 capital). The instruments attracted earlier are to be gradually excluded from the bank’s capital (10 percent of the instrument’s value each year—starting 1 April 2013 for ‘ordinary’ instruments, and starting 1 January 2018 for subordinated instruments attracted as part of the state support).

The Regulation entered into force on 1 March 2013 (save for a few provisions that will enter into force on a later date).

For further information please contact Igor Ostapets or Irina Dmitrieva in the Moscow office of White & Case, tel + 7 495 787 3000 .