New in banking regulation: proportional regulation and increased payments to Deposit Insurance Agency

From early 2018, the Bank of Russia is changing over to proportional regulation of the banking system. Banks have through the year end to opt to either increase their capital to as much as 1 billion rubles, which will enable them to operate under a universal licence, or switch to basic licence rules (whereby the minimal capital requirements are 300 million rubles). The transition period is due to end by 1 January 2019. Banks holding basic licences will enjoy a substantial regulatory easing which includes simplified reporting procedures.

Systemically important banks, which account for over 60% of all Russian banking sector assets, will also see some fundamental changes in the 2018 regulatory environment. The regulator is introducing the second of the two Basel III liquidity ratios, namely, structural liquidity ratio (also known as the net stable funding ratio, NSFR). This ratio is calculated as the available stable funding divided by its required amount. The minimal value of the ratio is 100%. Also, effective 1 January, their liquidity coverage ratio (LCR) will be ramped up from 80 to 90%. The latter is calculated as a ratio of high quality liquid assets to net cash outflows over a thirty day period.

Also effective 1 January, the capital adequacy buffers under Basel III will be increased. All banks regardless of type will have to comply with the 1.875% capital adequacy buffer requirement. The systemic importance capital buffer, which all 11 systemically important banks must comply with, will total 0.65%.

Separately, from 1 January 2018 all banks will have to apply International Financial Reporting Standard (IFRS) 9, which supersedes IFRS 39.

Finally, the Deposit Insurance Agency is due to increase its base rate at which payments are made to the deposit insurance fund from 0.12 to 0.15% of the basis for calculation.