Bank of Russia introduces incentive-based banking regulation for technological sovereignty and structural economic adaptation projects

The incentive-based regulation (Ordinances No. 6436-U and No. 6443-U) will help banks with a universal licence reduce the load on capital for targeted loans issued to finance the above projects after 30 September 2022.

The eligibility criteria of projects covered by the new regulation were approved by the Government. The decrease in the load on capital may reach from 10% to 70% of the standard magnitude of credit risk on a loan depending on the project type (technological sovereignty or the structural adaptation of the economy) and the credit quality of a loan assessed based on national credit ratings, among other things.

In order to mitigate risks, the incentive-based regulation may only be applied by banks complying with the add-ons to the capital adequacy ratios. Besides, the percentage of the decrease in the load on capital for the credit portfolio in general (the limit on capital savings) may not exceed 5% of a bank’s equity if the bank complies with the temporary values of the add-ons and 10% if the bank complies with the add-ons regardless of the temporary easing. In addition, the limit on capital savings depends on the average value of the bank’s annual net profit over the past five years excluding its maximum and minimum values.

The implementation of the incentive-based regulation will promote the financing of the investment projects that are vital for the country’s economy. Furthermore, as banks will receive additional capital, the overall growth of their potential for lending might reach up to ₽10 trillion.

This will additionally boost the development of the top-priority areas of the Russian industrial sector and help refocus external economic activity on new markets. In the medium term, the achievement of these objectives will increase the resilience of the economic system and, accordingly, improve the banking sector’s risk profile.