• 12 Neglinnaya Street, Moscow, 107016 Russia
  • 8 800 300-30-00
  • www.cbr.ru
What do you want to find?

Bank of Russia is implementing new approach to credit risk assessment by banks

30 December 2019
News

The new approach to credit risk assessment will generally enable banks to release capital and create additional opportunities for lending to the real economy.

This approach implies that capital ratios are calculated by counterparty class, and not by asset group (groups I–V).

The Bank of Russia instruction provides for the ‘investment class’ as a category of borrowers with a decreased risk ratio of 65% (currently — 100%) if they fall under quality categories I or II for the purposes of provisioning and admitting borrowers’ securities to exchange trading.

The assessment of risk for claims to banks will depend on classes assigned to banks based on their creditworthiness and compliance with the required ratios and minimal buffers to banks’ capital adequacy ratios.

The new approach establishes a decreased 85% risk ratio for claims to small and medium-sized enterprises assessed on an individual basis, with the current 75% risk ratio remaining for SMEs assessed on a portfolio basis.

For loans to corporate borrowers, the approach stipulates the ‘special-purpose lending’ class with differentiated risk ratios depending on special-purpose lending types (project, object or commodity finance). For project finance, risk ratios will also depend on project stages (investment or operation phase) and the credit quality of a project (poor, satisfactory, sufficient, high).

As related to projects being implemented under the VEB.RF-based project finance scheme, an increased 130% risk ratio will not be applied at the investment phase for two years (until the end of 2021).

The approach establishes classes of guarantees securing non-financial obligations (e.g., tender guarantees, guarantees in favour of the customs and tax authorities) with a credit conversion factor of 0.5 (instead of 1).

Higher risk ratios (instead of the current 150% ratio) will be applied to investments in legal entities’ unlisted shares (stocks): 400% for short-term speculative investments and 250% for other investments (with a five-year transition period established). The new approach sets an increased 150% risk ratio for the unsecured part of default loans (without collateral recognised to reduce credit risk) where estimated loss provisions for such loans are below 20%, with the effective date deferred until 1 January 2021. For loans extended beginning on 1 January 2020 and invested by borrowers in other legal entities’ authorised capital, the risk ratio has been increased from the current 150% to 200%.

The total insider risk ratio (N10.1) has been cancelled.

During one year, banks may, at their discretion, either continue to calculate the ratios pursuant to Bank of Russia Instruction No. 180-I, dated 28 June 2017, ‘On Banks’ Required Ratios’, or apply the new finalised approach (upon notifying the Bank of Russia if they switch to the new approach).

The Instruction was registered by the Ministry of Justice of the Russian Federation and comes into force on 1 January 2020, except for some provisions on the increase of asset risk ratios with a deferred effective date.

Preview photo: SmartPreview photoLab / Shutterstock / Fotodom
Save as PDF