Bank of Russia to revise accounting treatment of government guarantees in calculating required ratios and reserves
The new methodology will enable wider use of government guarantees of the Russian Federation to reduce credit exposure in calculating required ratios in the case of ruble claims secured by ruble-denominated government guarantees.
Specifically, government guarantees with a broader list of grounds for the guarantor’s non-execution of obligations can be used for this purpose. A differentiated ratio system is introduced, with ruble claims secured by such guarantees (depending on the grounds for non-execution of the guarantor’s obligations) to become subject to ratios in the range of 0% to 20%, instead of the current fixed risk ratio of 0%.
For the purposes of making loss provisions, government guarantees will be distributed based on collateral quality categories and exposure level depending on their conditions.
Also, the Bank of Russia intends to revise the previously introduced temporary exemption from the application of the increased risk ratio of 150% to bank investments in perpetual subordinated bonds of non-financial organisations. This decision is intended to strengthen the financial stability of the banking sector.
The economic nature of such subordinated bonds approximates them to capital, rather than debt, instruments. The increased risk ratio is planned not to be applied before 30 June 2025 only to bank investments in perpetual bonds of which issue registration with the Bank of Russia precedes 1 July 2021.