Bank of Russia to limit FX lending risks

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In order to bring down systemic risks of FX debt, the Bank of Russia intends to take additional measures to limit FX lending risks. This is the point made in the draft amendments to the Bank of Russia Instruction ‘On Banks’ Required Ratios’.

The document provides for an increase from 100% to 110% in risk ratios on FX credit claims (and investments in debt securities) on resident exporting legal entities 1. In order to further reduce lending in the riskiest segment, risk ratios on mortgage loan exposures have been revised upwards from 130% to 150%. The weighted risk ratio on other FX claims on legal entities will stand at 130% (the current ratio is 110%). There remains an exception that abrogates the application of the new risk ratios to credit claims guaranteed, directly or indirectly, by the Russian Federation (in particular, FX credit claims backed by an EXIAR insurance policy).

A large proportion of foreign currency in the banking sector’s assets and liabilities poses risks to financial stability that may be challenged by both borrowers without FX revenues and exporters. Excessive FX debt brings higher volatility in the domestic financial market as the global market environment deteriorates. In the years to come, such risks my aggravate in emerging market economies, as leading central banks abandon fiscal stimulus and global markets see a tightening in monetary conditions. The situation is further complicated for Russian banks and non-financial organisations by the restrictions imposed by certain countries on access to external borrowing.

The said changes will apply to newly issued loans (debt securities transactions) after 1 July 2018. This will help distribute pressure on bank capital over time (as and when companies need current debt refinancing and investment). Should the risks associated with dollarisation of bank assets and liabilities aggravate, the Bank of Russia may take additional measures.

 


1 The criteria for recognising a company as an exporter remain unchanged.

23 May 2018

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