The Bank of Russia authorises use of internal ratings-based approach for the first time

The regulator has permitted Sberbank of Russia to use banking methodologies to manage credit risk and quantitative models to estimate credit risk using the internal ratings-based (IRB) approach to calculate capital adequacy ratios.

Bank of Russia specialists conducted the evaluation of Sberbank’s rating systems for more than a year and a half.

The authorisation will come into force on 1 January 2018 after the Supervisory Board of Sberbank will adopt the decision to use these methodologies. Initially, the bank will have the right to use these models to estimate credit risk for the calculation of capital adequacy ratios with regard to credit claims on legal entities and individuals that were the reason the bank filed the application to use the IRB approach. In line with the Phased-out Transition Plan, Sberbank will transfer the remaining credit claim segments to the IRB approach. These will not include assets, whose credit exposure Sberbank will continue to calculate using the simplified standardised approach.

2018 may see the launch of the implementation of this approach in several more banks. This process points to a high degree of readiness among Russian systemically important banks to adopt advanced and modern risk assessment models. This will in turn allow the Bank of Russia to consistently introduce internationally accepted standards for capital adequacy assessment elaborated by the Basel Committee on Banking Supervision, as set out in Basel II Accord, into the Russian regulatory environment.