Regulating credit concentration: consultation paper
Some major Russian banks reported a significant increase in credit concentration on corporate borrowers over the past years. However, based on international and Russian experience, even large companies become insolvent sometimes. The potential default of such borrowers may cause banks to lose their financial stability and entail risks for the financial system as a whole. Therefore, the Bank of Russia believes it important to set up the regulation of concentration risks.
The concept of developing the regulation of concentration risks set out in the Bank of Russia’s paper covers the period until the end of 2030. The key proposals involve cancelling the easing of the requirements for calculating the concentration ratios, gradually introducing more stringent ratio N30 for systemically important credit institutions and specifying the consolidation perimeter.
The regulator plans to ease some current requirements. For example, for certain ratios, it will no longer be mandatory to group highly-reliable companies that are operationally and financially independent as related borrowers and the concentration on consolidated leasing and factoring bank subsidiaries will no longer need to be calculated.
The Bank of Russia proposes the following mechanisms to manage risks and meet the ratio targets: introduction of the ‘orange zone’ of compliance with the concentration ratios, the provision of guarantees by the Banking Sector Support Fund to be established, the development of syndicated lending and credit insurance instruments. The regulator also expects companies to raise more funds from capital markets.
The implementation of the proposed approaches will help reduce credit concentration risks with banks maintaining the necessary potential for granting loans to major companies.
Please send your answers to the questions raised in the paper and proposals relating to the concept of reforming the regulation of the credit concentration risks to the Bank of Russia through 31 July 2024.