Bank of Russia adopts a new approach to assessing credit exposure with respect to claims on sovereign borrowers

The new approach (introduced by Bank of Russia Ordinance No. 5137-U, dated 6 May 2019, ‘On Amending Bank of Russia Instruction No. 180-I, Dated 28 June 2017, ‘On Banks’ Required Ratios’) draws on the long-term credit ratings assigned by international credit rating agencies. The approach to assess credit risk used earlier was based on country scores assigned according to the classification of export credit agencies, parties to the agreement amongst OECD participants Arrangement on Officially Supported Export Credits.

Taking into consideration the existing rating of the Russian Federation, the new approach, once implemented, will help to halve (from 100 to 50%) the risk ratio on foreign currency claims on the Russian Federation and the Bank of Russia (as well as on foreign currency claims on other entities covered by their FX guarantees), including on export financing (guarantee facility in the form of the insurance contract of JSC EXIAR secured by the FX guarantee of the Russian Federation).

The ordinance also introduces the application of a 20% risk ratio to ruble credit claims secured by the ruble-denominated guarantee of VEB.RF (currently, a 100% risk ratio is applied to such claims).

The document also expands the list of concessions allowing for the exemption from a group of related borrowers who are principle contractors or contractors under the law ‘On State Defence Order’, on the basis of both existing control and considerable influence, and economic links.

The ordinance becomes effective 10 days after its official publication.