Banking regulation: 2019 Q2 information bulletin released

The Bulletin informs of the Bank of Russia regulations issued in 2019 Q2, including those:

– implementing the approach to measuring credit risk of claims on sovereign borrowers based on external long-term credit ratings;

– extending the reduced 20% risk ratio to ruble credit claims secured by ruble guarantees of State Development Corporation VEB.RF;

– stipulating that calculation of market average total cost of a consumer loan should take into account whether a borrower receives a salary or pension, benefits, social payments or compensations into his/her bank account.

The Bulletin also notifies of the Bank of Russia information letter containing recommendations for credit institutions on possible ways for them to cover capital funding risk, and of the interpretation according to which ruble-denominated single-tranche mortgage-backed securities that are secured by JSC DOM.RF's surety may be classified for calculating special interest rate risk similarly to corporate debt securities.

In addition, the Bulletin contains information on the draft regulations published in 2019 Q2 on the Bank of Russia website for assessing their regulatory impact. In particular, the said drafts:

– introduce a range of privileges for banks holding basic licences in calculating maximum risk per borrower or per group of related borrowers and decrease the minimum number of SME borrowers, claims against which may be included in the regulatory retail portfolio with the reduced 75% risk ratio;

– increase the threshold amount of a loan that may be included in a homogeneous loan portfolio from 1.5% up to 3% of capital value for banks holding basic licences;

– stipulate a separate procedure for provisioning related to portfolios of homogeneous loans granted to small and medium-sized businesses where risk is measured without using their official reporting;

– entitle credit institutions to make decisions on non-deterioration of debt servicing of loans granted to individual borrowers and restructured owing to mortgage payment holidays;

– clarify the criteria applied to assess creditworthiness of borrowers–developers using escrow accounts and set the frequency for providing updated information on the related provisions amount (at least once a year as of the reporting date);

– allow using individual borrowers’ identification based on their personal biometric data when relevant loans are classified into a portfolio of other homogeneous loans;

– clarify the procedure for calculating banking groups’ capital and required ratios, stipulate the specifics for calculating buffers to banking groups’ capital adequacy ratios (capital conservation buffers, countercyclical buffer, systemic importance buffer);

– modify the approach to assessing quality of banking groups’ risk and capital management systems by introducing appraisal of quality of internal procedures for capital adequacy assessment and consolidated assessment of capital adequacy of banking groups’ parent credit institutions;

– provide for the new standardised Basel III approach to measuring credit risk in financial derivative transactions for calculating required ratios for banks holding universal licences.