Bank of Russia changes regulatory requirements for assessing banks’ risks in relation to VEB.RF
The Bank of Russia Board of Directors approved amendments to Bank of Russia Instruction No. 199-I1 (effective 10 days after their official publication), which stipulate weighing all bank credit claims on State Development Corporation VEB.RF nominated and funded in rubles with the risk weight of 20% when calculating the prudential ratios of banks (previously, from 20% to 100%, depending on credit claim parameters).2 The amendments were made in connection with the ongoing reform of development institutions3 aimed at stimulating the economy and financing investment projects, as well as in line with the approved new Memorandum on the Financial Policy of State Development Corporation VEB.RF4 (hereinafter, the Memorandum). This risk weight is acceptable in accordance with the criteria stipulated in the Basel Accords.5
This risk weight is applied subject to VEB.RF compliance with the following financial stability requirements established by the Memorandum:
— the calculation of and compliance with the maximum values6 of financial stability indicators (capital adequacy ratios calculated based on risk-weighted assets, the financial leverage, the maximum exposure per borrower or a group of related borrowers);
— the successful completion of the annual stress testing of the adequacy of equity (capital) and liquid assets (the latter, once every six months).
The functions of monitoring compliance with these financial stability indicators, as well as evaluating the results of stress testing will be carried out by the National Council for Financial Stability7 and the Interdepartmental Working Group on Monitoring the Financial Situation of Group of Companies VEB.RF, Group of Companies DOM.RF and JSC RSMB Corporation.8
In accordance with the Memorandum, VEB.RF must include information on compliance with the established requirements for the maximum values of financial stability indicators in the consolidated financial statements prepared in accordance with international financial reporting standards and post it on its official website together with information on the results of stress testing of its equity (capital) and liquid assets.
In case of violation of the limit values of financial stability indicators and/or unsatisfactory results of VEB.RF stress testing, the Bank of Russia will decide whether to cancel or maintain the reduced risk weight for claims on VEB.RF. At the same time, the prospects for restoring VEB.RF financial standing will be taken into account, as well as the situation in the financial markets and the potential impact of this decision on the stability of the financial system in the Russian Federation. If a decision is made to cancel this risk weight, the Bank of Russia will inform market participants about it in advance.
The Bank of Russia also plans to amend the liquidity risk regulation in accordance with Basel III standard.9 These amendments provide for the inclusion of ruble-denominated securities issued by VEB.RF in highly liquid 2A level assets for the purpose of calculating the liquidity coverage ratio by credit institutions and, accordingly, systemically important credit institutions, provided VEB.RF complies with the requirements for the maximum level of financial stability indicators and VEB.RF stress testing results are satisfactory (provided other requirements applied to highly liquid assets are met).
In future, amendments are planned to the market risk regulation to calculate the adequacy ratios of banks' equity (capital),10 according to which VEB.RF's securities nominated and funded in rubles and classified as a trading portfolio of securities, can be classified into a group of low-risk securities. A mechanism based on VEB.RF compliance with the established financial stability requirements will also apply to this regulatory requirement.
1 Bank of Russia Instruction No.
2 Previously, the 20% risk weight was applied only for ruble claims on VEB.RF with the maturity of up to three months, as well as ruble claims on third parties under VEB.RF guarantees (sureties).
3 Directive of the Government of the Russian Federation No.
4 Directive of the Government of the Russian Federation No.
5 The Consolidated Basel Framework (CRE20 Standardised approach: individual exposures, p. 20.12, footnote 7 (a)): https://www.bis.org/basel_framework/chapter/CRE/20.htm?inforce=20230101&published=20201126.
6 Established by Clauses 61 and 64 of Chapter XVII of the Memorandum.
7 Established in accordance with Resolution of the Government of the Russian Federation No. 571, dated 5 July 2013, ‘On the National Council for Financial Stability’.
8 Established by Bank of Russia Order No. OD-895, dated 17 May 2021, with the engagement of representatives of the Ministry of Finance of Russia, the Ministry of Economic Development of Russia and the Ministry of Construction of Russia.
9 Bank of Russia Regulation No.
10 Bank of Russia Regulation No.
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