Bank of Russia retains national countercyclical capital buffer and risk-weight add-ons
The Bank of Russia Board of Directors decided to retain the numerical value of the national countercyclical capital buffer for the capital adequacy ratio of Russian credit institutions at zero per cent of risk-weighted assets and to leave unchanged the risk-weight add-ons for consumer and mortgage loans, and also on foreign currency-denominated claims on legal entities. In anticipation of forthcoming impairment in the quality of credit portfolio and given the need to support lending to the economy, the positive value of the national countercyclical buffer does not deem feasible.
Making its decision on the national countercyclical capital buffer and risk-weight add-ons, the Bank of Russia Board of Directors relied on the following factors.
In April-May 2020, while the counter-pandemic measures were in place, the pace of growth in outstanding amounts on household and corporate loans was mixed.
In April-May, outstanding amounts on household loans decreased by 0.5%.1 Outstanding amounts on corporate loans posted an 1.4% increase over the same period. These exceed the readings in April-May 2019 (0.1%) and in the first months of the stress period in 2015 (-0.1% in January-February 2015). Moreover, April and May 2020 saw an increase in outstanding amounts on the corporate bonds of non-financial organisations (by 1.2% over the two months). However, following the slack in economic activity, future growth rates of outstanding amounts on corporate loans may slow down.
The measures of regulatory easing by the Bank of Russia and the restructuring of household and corporate loans by banks help the financial sector to gradually adapt to economic changes and support borrowers. Banks have already restructured loans worth 2.8 trillion rubles, of which loans to large businesses worth 1.7 trillion rubles, SME loans — 0.6 trillion rubles, and household loans — 0.5 trillion rubles. The demand for loan restructuring is gradually subsiding on the part of both households and SMEs. At the beginning of June, weekly numbers of new applications for restructuring were
No material impairment of the credit quality has been observed following the restructuring of loans and the deferred realisation of credit risk. The proportion of unsecured consumer loans overdue more than 90 days is 8.2% as of 1 May 2020 (7.5% as of 1 January 2020), and that of mortgage loans is 1.4% (1.3% as of 1 January 2020). The proportion of corporate loans referred to quality categories IV and V is 10.9% as of 1 May 2020 (11% as of 1 January 2020), excluding credit institutions that had undergone the financial rehabilitation procedure, for them the same reading stood at 6.8% as of 1 May 2020 (6.5% as of 1 January 2020). The survey of the largest retail banks points to an increase by
Banks will be able to cover the potential increase in losses on loans out of accumulated capital buffers, including macroprudential capital buffers. Banks’ capital buffers, including capital conservation buffer and systemic importance capital buffer, total 5.6 trillion rubles.3 Additionally, the macroprudential capital buffer for consumer loans totalled 574 billion rubles as of 1 May 2020, whereas for foreign currency claims on companies — 161 billion rubles.4
The Bank of Russia will assess the expediency of the release of accumulated macroprudential capital buffer with due regard to the dynamics of lending and the quality of credit portfolios, as well as in combination with further decisions on regulatory easing in terms of provisioning on loans (they are in effect through 30 September 2020 and may be extended further, if need be).
The Bank of Russia Board of Directors will hold its next CCyB rate / risk-weight add-ons review meeting in September 2020.
1 All values for the growth rates of outstanding amounts are adjusted for FX revaluation. For credit institutions that were operating as of the last reporting date, including banks that underwent restructuring.
2 The largest segment of unsecured consumer lending which demonstrated 77% of outstanding loans.
3 The calculation was made as of 1 May 2020, inclusive of the reclassification of non-audited profit in the core capital as well as the positive effect of the loss on the risk-weighted assets.
4 If add-ons to risk weights for consumer loans decrease to zero, banks will be able to absorb losses either totalling 574 billion rubles and to preserve the current value of the capital adequacy ratio, or totalling 456 billion rubles and to preserve the current values of three capital adequacy ratios. For foreign currency claims on companies, these readings stand at 161 and 123 billion rubles respectively.
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