Banks to make provisions on loans to developers that use escrow accounts under new procedure

A Bank of Russia Ordinance stipulates a special procedure for making provisions on loans issued to developers that use escrow accounts.

According to the document, banks are to make provisions on such loans depending on the borrower’s creditworthiness level, which is determined by a number of criteria set by the Bank of Russia. Based on these criteria, there are four creditworthiness levels: high (with an estimated provision of 1 to 5%), sufficient (with an estimated provision of 5 to 10%), satisfactory (with an estimated provision of 10 to 35%), and low (with an estimated provision of 35 to 100%).

This procedure takes into account the specifics of investment project financing in residential construction. In contrast to the general approach to borrower assessment based on financial position and debt servicing, the assessment of risk for certain loans to developers and the amount of provisions are based on a comprehensive analysis of the project in accordance with the set criteria.

The document has been registered by the Ministry of Justice of the Russian Federation and becomes effective 10 days after its official publication.