Subordinated loan is a special type of lending that is provided for a period of not more than five years and does not have the possibility of its early redemption. Completely the debt can be repaid only after the term of the contract expires. If a situation arises when the borrower becomes bankrupt for various reasons, it should be noted that the creditor's claims for the return of such a loan will be executed last, that is, only after the obligations to other creditors are repaid.
According to the legislation, a subordinated loan( 395-P - Regulation of the Bank of Russia of December 28, 2012 "On the methodology for determining the value of equity( capital) of credit institutions( " Basel III ")) is provided only to credit institutions so that they can increaseThe funds received for this type of credit are immediately included in the category of the additional capital of the bank that received the loan, which in turn is one of the components of the value of the equity.
What are the individuals
For the banking system of our country, a subordinated loan is quite a new phenomenon, although in Western countries it is quite popular, in addition to being strictly limited in terms and having no possibility of early repayment, the subordinated loan must meet the conditions:
1.The debt on the loan is extinguished only after the term of the loan is over, that is, a one-time payment. On the one hand, this is an advantage, and on the other hand it is a disadvantage. In other words, the dignity lies in the fact that during the entire term of the loan agreement, the borrower is sure that no one will ask anything from him, and the disadvantage is that it will not be possible to pay off the loan ahead of time and save on it on interest.
2. A subordinated loan agreement can be concluded strictly with a legal entity, but in our country it is more practicable to provide it to banks. In this case, it helps to solve the problems arising with capital and is a measure against the onset of the crisis. In addition, it helps many banks not become bankrupt.
3. By a bank that received a subordinated loan, all funds can be included in the additional capital account if the Central Bank has not entered into a contract for more than five years. If the period is less, the borrowed funds can be used only under certain restrictions.
Subordinated loan of
Bank As a rule, the terms of the agreement are structured in such a way that, until the CBR permits, the interest and principal can not be repaid. Only he can make any adjustments to the contract and give permission for early repayment, as well as review the amount of interest on the loan. A subordinated loan with an additional condition should not contain such items, which may have any effect on the termination of the contract.
In the event that the borrower becomes bankrupt, the repayment requirements for this loan will only be fulfilled in the last place, after all other debts have been returned to other creditors.
Who else can get a subordinated loan?
This type of lending is applicable not only to banks.
1. For AO.In this case, subordinated loans are provided when a company can not issue its shares due to its small size, the company exists recently and can not receive a simple loan, the organization is listed as a risk group and therefore its shares are not sold, the company is in a very difficult financial situation. With the help of a contract, the company improves its position, strengthens its assets, acquires other firms and so on. The lender benefits from such a loan, since he invests in some business and receives income from it.
2. From the founder. For example, the founder provides a loan for the organization, which she is obliged to send to the endowment fund. Refunds are made by a one-time payment at the end of the term.
3. From the insurance company. Legislation defines a subordinated loan as a loan granted for a period not exceeding five years and having an interest rate not higher than the refinancing rate with a coefficient of 1.1.The very same loan amount can not be more than 25% of the total amount of the insurance company's funds. Subordinated loans can also be provided by the state, private investors or parent insurance companies.
What is the interest rate on a subordinated loan?
A subordinated loan is not a simple consumer loan or any other, so the interest rate on it can not be higher than the refinancing rate. It is strictly fixed and is not subject to further revision. When drawing up such a loan, no additional collateral is required. Also, the contract does not include points on penalties.
What are the requirements for a subordinated loan?
Subordinated loan to Sberbank, for example, has a number of features and differences from other lending programs.
First, it does not require additional financial security, since the loan is intended to provide or simply increase the stability of a particular bank, for this reason, the agreement does not provide for forfeit points.
Secondly, there is a clause in the contract prohibiting its dissolution before the appointed time.
Third, it is necessary to indicate the possibility of changing the interest rate throughout the life of the loan.
What happens if the conditions are not met?
If one of these requirements is not fulfilled, it is impossible to count the subordinated loan agreement as insignificant, but as the borrowed funds are used, problems will arise. Here it is meant that all the changes that occur should be coordinated strictly with the regulatory body of the financial market( CBR).In a different situation, the borrower is simply excluded from the right to repay the subordinated loan as additional funds.
What is the benefit to the lender?
Although the subordinated loan limits the creditor's powers to a lesser degree by providing a good stable position to the borrower by providing payment vacations for the entire duration of the contract, this pays off everything to him. Such inconveniences and limitations completely compensate for the increased interest rate when compared with other types of lending and the ability to further convert the entire amount into shares of a bank that has been granted a subordinated loan.
Who can act as lender?
As for the question of who can act as a creditor, the answer is very simple - it can be an individual, a commercial structure, a government institution, and the Central Bank. At the same time, creditors are also given additional benefits. Here it is meant that free finance can be invested in a fairly profitable business for a long time, with the possibility of further profit. In addition, in the presence of relevant agreements, it is possible to convert money into a share of the authorized capital, that is, to act as one of the shareholders and to be able to become part of the operational management.
Subordinated loan is some innovation for the Russian credit market, for this reason the number of such loans is quite small, although Western countries widely practice the use of this product. The popularity of subordinated loans fell heavily in the financial crisis in 2008, when the state-owned Vnesheconombank provided large loans to several banks for more than four hundred billion rubles. With the help of this step, the financial system has received support to maintain liquidity and stabilize the entire financial system of the country. Thus, the deterioration of the state of the entire economy was prevented. To date, such loans are more investment in order to expand the capacity of specific financial institutions, and not to save them from possible bankruptcy.