Banking Regulation Review: 2024 Q4 results and future plans
At the end of 2024, the Bank of Russia published the approaches to credit risk assessment by banks, which were updated based on the outcomes of discussions with the market. Presumably, the amendments will come into effect in 2025 Q3—Q4 and will help limit risks and reduce the burden on banks where risks were excessive.
With regard to provisioning, the regulator is going to:
- specify the closed list of official documents to assess the income of an individual borrower. If such documents are not available, banks will be allowed to include loans up to ₽200,000 into their portfolios of homogeneous loans, subject to increased loan loss provisions; and
- introduce a higher provision ratio for mortgage loans where payments grow faster than 20% per year and the total grace period exceeds three years. The ratio will help protect borrowers, who do not always understand the risk of a sharp increase in payments, and discourage banks from using the schemes that lead to the overpricing of flats as compared to their real market prices.
With regard to capital adequacy ratios, the following measures will be taken:
- all banks with a universal licence will switch to the finalised approach, which is more risk-sensitive. This measure will improve the quality of risk assessment in the sector and level the regulatory field for market participants;
- requirements for investment-grade borrowers (risk weight of 65%) will be increased to ensure that only highly-reliable companies are included in this category. The national rating of a borrower or its parent company shall be at least A and its standalone credit rating shall be at least BBB+;
- reduced risk weights established for small and medium-sized enterprises (SMEs) with outstanding loans over ₽8 billion will be discontinued, as these are actually large corporates (holdings, project companies of developers) that meet the SME criteria only on paper; and
- risk weights for mortgage loans will be updated taking into account default statistics and will become the same for shared construction agreements and mortgages for existing housing.
The report on the discussion of the concentration risk regulation concept presented last summer has been completed. The document outlines further measures to finalise the regulation and sets the timeframe for its implementation.
More details are available in the Banking Regulation Review for 2024 Q4.