The Bank of Russia develops stimulating banking regulation

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The Bank of Russia plans to adopt the elements of stimulating regulation supportive of economic growth. A range of incentives applicable in banking regulation are presented in the public consultative report ‘Stimulating Banking Regulation’ published on the regulator’s website.

The Bank of Russia includes in the elements of stimulating regulation a transition to proportional regulation implying the division of banks, depending on their capital size, into banks with a universal licence and banks with a basic licence. According to the regulator, this approach will stimulate lending to small and medium-sized enterprises (SMEs).

Changes in the general banking regulation will also produce a noticeable effect on stimulating SME lending. Specifically, it is planned to increase the size of SME loans to be further included in the homogeneous loan portfolio of borrowers with middle financial standing. Attention was given to the possible classification of guarantees issued by JSC RSMB Corporation as part of the collateral of quality category I. Plans are also underway to expand the list of information used for analysing the financial standing of an SME borrower.

To develop the project financing, the regulator proposed to apply the quality indicators of investment projects under Basel II framework for assessing credit exposure using the internal ratings-based approach (IRB approach). The size of estimate provisions will be determined on the basis of a borrower's solvency rate assigned under the IRB approach. With regard to these loans, no high provisioning ratios will be applied in case of non-payment for more than two years, and no assessments confirming the actual status of a borrower's activity will be conducted.

The Bank of Russia will look into the potential use of a similar approach to creating provisions for loans under the equity construction programmes, thereby allowing banks to expand project financing, including in the residential construction.

Changes to loan loss provisions are proposed to incentivise the mortgage market. At the same time, the Bank of Russia will stimulate low-risk mortgages by setting risk ratios for mortgage lending depending on their reliability.

In the sphere of securitisation, the Bank of Russia will introduce a new procedure to calculate credit exposure: the estimated risk ratio will be determined by the quality of securitised assets and the structure of a deal. This approach is more beneficial for “good” securitisation based on high-quality assets, efficient risk management and proper information disclosure.

The Bank of Russia also intends to demotivate M&A lending by banks if these M&A deals do no support economic growth.

The Bank of Russia welcomes any feedback, proposals or comments to the consultative report before 15 July 2018.

28 June 2018

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