NPF stress test scenarios updated
The Bank of Russia has updated mandatory stress test scenarios for non-governmental pension funds (NPF), to be applied beginning on 29 May 2020. Among other things, the amended scenarios take into account economic developments caused by the spread of the coronavirus infection and volatility in global financial markets over the last three months.
As compared to the previous scenarios, the updates imply a shorter growth period for OFZ yields, a close growth pace over a shorter period for the corporate bond spread, and a smaller decline in the MOEX Index (to March 2020 lows, with a subsequent recovery).
The updated scenarios bring nearer the periods of an increase in asset default probabilities, which reflects a potential deterioration of companies’ financial standing since the beginning of the year. Furthermore, the updates allow the recording of national scale ratings for the structured finance sector (.sf) assigned by RAEX Rating Agency and Analytical Credit Rating Agency (ACRA).
Mandatory stress testing for NPFs’ pension asset portfolios has been introduced to measure NPFs’ financial resilience to negative events over a five-year horizon. The stress test scenarios do not coincide with the Bank of Russia’s expectations regarding the most probable development of the situation. To successfully pass the stress tests, an NPF should demonstrate that it is capable of fulfilling its obligations to its clients at least in 75% of the trials under each scenario.
Earlier, within the regulatory easing due to the coronavirus spread, the Bank of Russia allowed NPFs not to bring their portfolios in line with the regulatory requirements after stress testing until 1 January 2021, if their asset deficiency was induced by market factors.