Banking regulation: regulatory documents issued in 2019 Q4

The Bank of Russia published a Bulletin containing a list of the regulations it issued in the last quarter of 2019. According to these documents, the following innovations have been implemented in the regulation of credit institutions’ activities:

• introduction of a new approach to assessing credit exposure with respect to claims on banks and corporate borrowers as part of the phased implementation of the new standardised approach to assessing credit risk required by the Basel Committee on Banking Supervision standard Basel III: Finalising post-crisis reforms;
• amendments to the methodology for measuring the capital of credit institutions (Basel III);
• amendments to the procedure for credit institutions to make loss provisions for loans, loan and similar debts;
• amendments to the procedure for a credit institution to generate a capital recovery plan and coordinate it with the Bank of Russia;
• formulation of a list of measures to be applied against credit institutions for violation of the requirements set forth by Federal Law No. 115-FZ and the regulations adopted in pursuance thereof.

Additionally, in 2019 Q4, the Bank of Russia published an information letter, whereby it informed credit institutions that federal (municipal) guarantees, whose conditions allow for their revocation on any grounds prior to the fulfilment of obligations by the principal, may not be used for creating loan loss provisions, nor for the calculation of banks’ required capital adequacy ratios. Another informational letter recommends that banks shall on no account make decisions on up-grading the quality of loans recognised as impaired under the requirements of IFRS 9 to a higher quality category than otherwise set forth by Regulation No. 590-P.

The bulletin also contains information on the draft regulations published in 2019 Q4 on the Bank of Russia website for assessing their regulatory impact. Among other things, these drafts provide for the following:

• limitation of lending for M&A transactions by setting a 5% minimum on loss provisions on loans used for investment in other legal entities’ charter capital with an option for phased creation;
• introduction of a requirement that guarantees issued to banks (bank guarantees), guarantees of RF constituent territories and RF guarantees are not included in loan loss provisions, if the conditions of such guarantees provide for the possibility of revocation by their guarantor;
• amendments to the methodology for measuring credit institutions’ capital associated with the introduction to the accounting rules of credit institutions of the new procedure to reflect lease agreements in bookkeeping accounts, in line with the requirements of IFRS 13 Leases;
• clarification of the reporting procedure required for the consolidated supervision of credit institutions, and also bringing this procedure in line with international financial reporting standards.