First stress testing for credit consumer cooperatives

The stress test enrolled the biggest credit consumer cooperatives (CCCs) which account for about 37% of the credit cooperation market (agricultural and housing saving cooperatives were not included). It needs to be mentioned that under assessment were credit risks when changing the required provisions rate and overdue amounts. As for liquidity risks, they were not a part of the stress test.

The current regulation provides for the creation of provisions for the impairment of the loan portfolio up to the year 2017 on a phase basis. Up to the end of 2015, CCCs will have to create loan loss provisions totalling at least 30% of the estimate, and by the end of 2017, they should be as high as 100%. Based on the stress test results by the end of 2017, CCCs will have to build additional provisions worth at least 1.1 billion rubles provided the current rate of overdue loans is the same. However, a 50% deterioration in loan portfolio quality is estimated to require the additional provisions for the CCCs worth at least 2 billion rubles.

The market participants are recommended to go ahead with a self-test based on the results of stress testing as regards the influence any additional provision building can have on the situation, and (if needed) hold general meetings of shareholders to decide on the joint and subsidiary cover of losses.

CCC stress testing is a key instrument to assess the financial status of the market and it seems to be important in regulatory and supervisory decision making.

The Bank of Russia states that stress testing assumes a scenario analysis, but it does not call for the assessment of probability for implementing individual scenarios.