Agency fee insurers will hit the capital of banks

Agency fees are “fictitious source” income and subject to the exception of Bank capital in the period until 1 January 2018, according to the Central Bank. According to information on the website of the Central Bank, the regulator is preparing amendments to the regulation No. 395-P “On the method of determining the own funds (capital) of credit organisations (“Basel III”)”. They stipulate that credit institutions will be given the opportunity of adjusting the capital in part Agency payments generated 2014.

Banks act as agents of insurance companies. The funds for insurance of the loan may also be issued as a loan and the Bank gets from the insurance company agent’s Commission. The CBR believes that these awards cannot be included in the assessment of the Bank’s capital.

A source close to the Central Bank, explained that the audits of Russian banks attention to these sources of capital is paid in recent months. While there are cases when after the reporting date, banks still continue to violate the guidelines of the regulator. The interlocutor of the edition recognised that the entry into force of the new requirements should solve the problem, but it will be “sensitive to the number of players.”

The document is in the discussion stage, comments are premature, said the press service of the Central Bank.

Impact on standards

The interviewed experts noted that the innovations should struggle with credit schemes in the capital increase. As noted by chief analyst of Sberbank Mikhail Matovnikov as the Bank gets the insurance Commission, together with the loan, it turns out that it was obtained through a loan that is not fair. On the one hand, the Central Bank said that the insurance should be considered as part of the effective cost of lending, banks disclose to customers the actual cost of the loan taking into account insurance, warning that the Bank will earn more than just interest, and on the other hand, the Central Bank introduces the rule of “fictitiousness” of the earnings of the Bank, he adds.

According to information on the website of the Central Bank, the total amount of Agency fees of insurance companies and credit institutions in the period from 2014 to 2016 amounted to about 200 billion rubles. Banks — the largest recipients of Agency fees, payment of their account for 44% of the total mediation of payments of insurers. However, the interviewed experts found it difficult to estimate the exact amount of funds may be subject to new regulations. “Actual adjustment of the Bank’s capital will be less, because this figure is calculated as an Agency fee minus the share is repaid by the borrower of the obligations in the total amount of original loans,” — says the analyst of rating Agency ACRES Kirill Lukashuk.

Experts agree that the proposed CBA will affect the portion of distributed profits that is included in capital of banks. In this regard, the norms of H1 and H2, in particular, can correct.

Under attack consumer loans

For most players the actions of the Central Bank is not critical, but, given that capital is necessary to adjust for three years, for a number of banks, the consequences can be significant. “This applies mainly to pure retail players, whose capital adequacy close to the regulatory minimum. For others it will not be significant because the project does not affect accounting profit, touching only approach to the calculation of the capital”, — said the chief accountant of Nordea Bank Tatiana Sharova.

A more rigorous approach, the Central Bank will affect the banks that issue unsecured consumer loans where the loan is issued including the payment of insurance premium where the amount of the insurance premium is significant with respect to both the loan amount and other payments thereon, said Vice-President of Moody’s Olga Ulyanova. In her opinion, to a much lesser extent this measure will affect mortgage lending: typically, borrowers of this segment has sufficient funds to pay the insurance premium, and its specific share in the total loan payments is insignificant.

Deputy Chairman of the management Board of Absolut Bank Tatiana Ushkov, adds that the Central Bank in the past two years the audits points to the need for exceptions to capital this indicator. “In this regard, in my opinion, most universal banks, in particular, dealing with a mortgage, to adjust the regulations will have,” he says.

Deputy Chairman of the Board of OTP Bank Alexander Vasiliev said that his Bank does not take credit of the Agency payments in the calculation of capital.

Bankers say that changing the lending process — the customer is now often proceeds to take out a loan only after insurance. Thus, in particular, had come to the Bank “DeltaCredit.” In this first customer pays the insurance premium from its own funds directly to the insurance company. In this regard, the Bank receives an Agency fee recognized as income, which increases the Bank’s capital. With more stringent rule, banks will be less willing to provide loans that cover including the amount of the insurance premium, and the population will have more policies to purchase, adds Lukashuk.