Setting buffers to risk ratios for calculating capital adequacy requirements by credit institutions

In connection with the transition to a new macroprudential regulation mechanism, the Bank of Russia Board of Directors decided to set buffers to risk ratios for calculating capital adequacy requirements by credit institutions.

In accordance with Bank of Russia Ordinance No. 4892-U¹, buffers were applied to certain types of assets, including consumer loans, mortgage loans, foreign currency-denominated credit claims on legal entities, etc.

Buffers to risk ratios, introduced in line with the transition to the new regulation mechanism, will be effective from 8 October 2018 (the effective date of Bank of Russia Ordinance No. 4892-U ) and will not entail increased capital adequacy requirements for credit institutions. To maintain the level of capital requirements intact, necessary amendments were made to Bank of Russia Instruction No. 180-I, dated 28 June 2017, ‘On Banks’ Required Ratios’, which provide that values of risk ratios for assets subject to buffers are brought to standard values in line with Basel III.

The transition to the new macroprudential regulation mechanism will allow the regulator to conduct its policy of ensuring financial stability more efficiently.

At the same time, the Bank of Russia Board of Directors decided to set buffers to the risk ratios for mortgage loans and loans for financing under equity construction agreements with a low down payment², at the level of 1.0 (100%). The decision will come into force in three months and will apply to loans extended from 1 January 2019. As a result of application of these buffers, credit institutions will use the ratio of 200% when weighing this type of loans for capital adequacy calculation purposes (before such amendments the ratio of 150% was applied³). These measures are intended to ensure sustainable development of the mortgage lending segment.

¹ In accordance with Bank of Russia Ordinance No. 4892-U, dated 31 August 2018, ‘On Types and Characteristics of Assets for Which Risk-based Capital Buffers are Set and on the Methodology for Applying These Buffers to the Said Types of Assets for Credit Institutions to Calculate Their Capital Adequacy Ratios’.

² Mortgage loans that meet all of the following criteria: 1) the ratio of the principal amount of debt to the fair value of the collateral calculated as of the required ratio calculation date exceeds 80% of the fair value of the collateral; 2) the ratio of the principal amount of debt to the fair value of the collateral calculated as of the credit (loan) issuance date exceeds 80% and does not exceed 90% of the fair value of the collateral.

For mortgage loans where the ratio of the principal amount of debt to the fair value of the collateral calculated as of the credit (loan) issuance date exceeds 90% of the fair value of the collateral, the increased risk ratio of 300%, which is equivalent to the buffer of 2.0, continues to apply.

3) For loans for financing under equity construction agreements where the down payment is less than 20%.

³ In accordance with amendments to Bank of Russia Instruction No. 180-I, dated 28 June 2017, ‘On Banks’ Required Ratios’, risk ratios for such credit claims were set at 100%.

The reference to the Press Service is mandatory if you intend to use this material.