What is a subordinated loan
Features subordinated loan
For the Russian banking system, subordinated credit is a new phenomenon, although in Western practice it has become widespread. In addition to strictly stipulated terms and impossibility of early repayment, among the features of a subordinated loan are the following:
The loan debt is repaid only after the expiration of the loan in one payment. This is both a virtue and a disadvantage of this loan: on the one hand, the borrower can be sure that during the entire loan period no one will demand anything from him (the loan cannot be claimed ahead of time), on the other, it is impossible to repay the loan and save on percent.
Such a loan is available only to legal entities, in Russian practice it is issued only to banks, they serve to increase capital and act as an anti-crisis measure and help banks avoid bankruptcy procedures.Subordinated loans were actively issued to banks during the crisis in 2008–2009. So, VEB granted 17 banks loans in the amount of 404 billion rubles, the largest loans were received by VTB (200 billion rubles) and Gazprombank (90 billion rubles).
A bank that has received a subordinated loan may include 100% credit funds in the account of additional capital if the agreement with the Central Bank was concluded for a period longer than 5 years. If - less than five years, then borrowed funds can only be used with restrictions.
Subordinated loan terms
Under the terms of the subordinated loan agreement, the amount of interest and principal, the borrower cannot return earlier without the permission of the Central Bank of the Russian Federation. Only he can make changes to the contract and allow early repayment and revision of the amount of interest on the loan. The agreement should not be present institutions that may somehow affect the termination of the contract. The Central Bank verifies that the bank has claims against a person who has provided a subordinated loan.If the borrower goes bankrupt, the lender’s claims on a subordinated loan will be met last, only after 100% satisfaction of all lenders ’claims.
The interest rate at which money is issued by the Central Bank cannot exceed the current refinancing rate, it is fixed and not subject to revision. When applying for such a loan loan collateral is not required. The contract may not include clauses on the penalty.
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