Russian banks get another 6 months to issue subordinated debt with floating rate capped at key rate + 5 p.p

MOSCOW. June 26 (Interfax) - The Central Bank of Russia has extended banks' ability to issue subordinated instruments with a floating rate capped at the key rate plus 5 percentage points (p.p.) for six months, according to a decision by the board of directors published on the CBR's website.

Under Central Bank regulation no. 646-P on the methodology for determining banks' capital, the maximum interest rate on ruble subordinated loans (deposits, borrowings, bond loans) should be 15%.

In 2022, after a sharp increase in the key rate, the Central Bank introduced relaxations to the maximum subordinated debt rate. The rate was set at the higher of two values - 15% or the key rate plus 5 p.p. The measure was in effect until December 31, 2022, but was not extended, as the key rate had decreased by that time.

In autumn 2024, amid tightening monetary policy, banks asked the Central Bank to adjust the maximum ruble subordinated debt rate, as this instrument was losing out to deposits in terms of yield due to the restriction. The CBR eased the rules, setting the cap for floating-rate subordinated instruments at the key rate plus 5 p.p. For fixed-rate instruments, the maximum remained at 15%.

The measure was in effect until June 30, 2025, inclusive. According to the regulator's website, the Central Bank's board of directors decided on June 23 to extend it until December 31, 2025.

First Deputy Chairman of VTB Bank Dmitry Pyanov told Interfax on the sidelines of the St. Petersburg International Economic Forum (SPIEF 2025) that the Central Bank might prolong this measure. The bank, having recently agreed with holders on the ruble conversion of one of its foreign currency subordinated bond issues, was awaiting the CBR's decision to hold repeat voting on three more issues.

"We expect that the Central Bank's board of directors will extend the possibility of exchanging this class of foreign currency subordinated debt for ruble-denominated debt, which expires on June 30, possibly until the end of this year. We have eight foreign currency subordinated issues. We've converted one to rubles, leaving seven unconverted. For three of them, we have a relatively high proportion of positive votes, and more importantly, a very low proportion of dissent - 1%-2%," Pyanov said.