Bank of Russia introduces new credit risk assessment procedure covering securitisation transactions

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Under a new approach, the higher the transaction quality and transparency of a securitisation transaction, the lower the credit risk assessment will be. This means capital requirements may be reduced.

Specifically, the new credit risk assessment procedure provides for a novel capital adequacy ratio calculation method. The mandatory 1250% risk ratio application requirement is now void for investment in junior tranches: the ratio will apply only in the absence of information about the quality of securitised assets and the transaction structure. Furthermore, fixed risk ratio values under securitisation transactions are to be replaced with risk ratios calculated according to the so-called supervisory formula. The calculated risk ratio value may come out as low as 15% as the quality of securitised assets and the transaction structure achieves higher rankings. Also, the originator (the bank issuing a loan) retains the option of going by risk ratios that applied before the securitisation transaction.

Separately, a simple, transparent and comparable securitisation concept is being introduced. It will be subject to a preferential credit risk assessment enabling a reduction in the risk ratios of up to 10% for investment in senior tranches and up to 15% in the rest of tranches.

Regulation 647-P has been registered by the Ministry of Justice of the Russian Federation and becomes effective 10 days after its official publication.

15 October 2018

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