Bank of Russia to revise approaches to project financing and M&A loan risk assessment

The changes assume that loans extended to finance M&A transactions will be classified as quality category III. At the same time, banks will be allowed to raise the quality category of such loans by no more than one step if the borrower's operational activity indicators suggest that it will fully and timely make its principal and interest payments.

This decision is taken to discourage banks from crediting investments into companies’ authorised capital, which do not promote economic growth. In addition to limiting banks’ risk of losses, the expected positive effect of this measure is providing the economy with long funds at the expense of resources that will no longer be used to credit M&A transactions.

Amendments to the document also assume that the provisioning approach used for loans issued as part of VEB’s Project Finance Factory programme will be extended to other types of project financing.

This will allow banks to increase their project financing, i.e. provide long money to the economy for large (primarily, infrastructure) projects.

The draft document assumes that amendments may come into force since 1 October 2019.