On introducing liquidity coverage ratio

The Bank of Russia decided to set the liquidity coverage ratio (Basel III) (hereinafter, the LCR) at the minimum 70% requirement from 1 January 2016 and further raise it by 10 pp annually to reach 100% on 1 January 2019. The LCR is worked out in compliance with the documents of the Basel Committee on Banking Supervision (hereinafter, the BCBS) Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools (January 2013) and Principles for Sound Liquidity Risk Management and Supervision (September 2008). The ratio will be calculated in compliance with Bank of Russia Regulation No. 510-P, dated 3 December 2015, ‘On the Procedure for Calculating the Liquidity Coverage Ratio (Basel III) by Systemically Important Credit Institutions’ (hereinafter, Regulation No. 510-P).

Regulation No. 510-P stipulates that amid financial market turmoil highly liquid assets can be used to cover cash outflows which result in a drop in the actual value of the LCR below the minimum.

The LCR compliance requirements shall be applied to the credit institutions recognised as systemically important in accordance with Bank of Russia Ordinance No. 3737-U, dated 22 July 2015, ‘On the Methodology for Determining Systemically Important Credit Institutions’. The LCR compliance requirements shall be applied on a consolidated basis to systemically important parent credit institutions of banking groups. The list of systemically important credit institutions is approved by the Bank of Russia.

The LCR shall be calculated in compliance with the procedure for calculating the liquidity coverage ratio (hereinafter, the LCR) established by Bank of Russia Regulation No. 421-P, dated 30 May 2014, ‘On the Procedure for Calculating Liquidity Coverage Ratio (Basel III)’ (hereinafter, Regulation No. 421-P), as amended by Bank of Russia Ordinance No. 3872-U, dated 1 December 2015, ‘On Amending Bank of Russia Regulation No. 421-P, Dated 30 May 2014, ‘On the Procedure for Calculating Liquidity Coverage Ratio (Basel III)’.

Starting 1 January 2016, the Bank of Russia introduces a requirement for systemically important credit institutions to quarterly disclose information on the LCR arithmetical mean and indicators included in the LCR calculation based on the values as of the first day of each month of the quarter. Starting 1 January 2017, systemically important credit institutions shall disclose information on the LCR arithmetical mean and indicators included in the LCR calculation based on the daily values for the previous quarter.

Credit institutions, which meet the requirements of Clause 7 of Part 1 of Article 76 of Federal Law No. 86-FZ, dated 10 July 2002, ‘On the Central Bank of the Russian Federation (Bank of Russia)’ as of 1 January, will continue to calculate the LCR and report to the Bank of Russia in Form 0409122 ‘Calculating the Liquidity Coverage Ratio (Basel III)’ (hereinafter, the Reporting in Form 0409122).

The Bank of Russia has analysed the value of highly liquid assets in the Russian financial system and systemically important credit institutions’ need for these assets in order to look into the application of alternative (additional) LCR calculations envisaged by Basel III. Given the insufficiency of highly liquid assets held by Russian credit institutions to calculate the LCR, the Bank of Russia decided to include in the LCR numerator as additional liabilities (assets) the limits of irrevocable credit lines opened by the Bank of Russia and highly liquid assets in certain foreign currencies in terms exceeding the need for this currency.

In order to implement this decision the Bank of Russia allows credit institutions to conclude agreements on opening irrevocable credit lines (hereinafter, the Agreement) in compliance with Appendix 1 to Bank of Russia Order No. OD-3381, dated 30 November 2015, ‘On Issuing Loans under Agreements on Opening Irrevocable Credit Lines’. The agreement with the Bank of Russia can be concluded by systemically important credit institutions and credit institutions whose equity capital exceeds 25 billion rubles, which are subsidiaries of systemically important credit institutions whose share in the capital of subsidiary credit institutions exceeds 50%.

The Bank of Russia opens the irrevocable credit line of the credit institution for one year (365 days), another irrevocable credit line can be opened for a similar term as the open irrevocable credit line expires. The maximum limit of the irrevocable credit line shall be calculated by the Bank of Russia on the basis of the ruble component data in Form 0409122 in compliance with Bank of Russia Order No. OD-3439, dated 3 December 2015, ‘On Determining the Maximum Limit of the Irrevocable Credit Line’, and shall be the least of the irrevocable credit line limit requested by the credit institution and regulatory estimate of highly liquid asset deficit.

When opening the irrevocable credit line, the credit institution shall make a payment for the right to use the irrevocable credit line in the amount of 0.15% of the maximum irrevocable credit line limit set in the Agreement.

The Bank of Russia shall not be able to unilaterally terminate the Agreement before the expiry of the irrevocable credit line or change the parameters of the irrevocable credit line (e.g., payment for the right to use the irrevocable credit line, the maximum irrevocable credit line limit, the term of the irrevocable credit line).

Bank of Russia loans are issued under the Agreement for 90 days inclusive at the interest rate equal to the Bank of Russia key rate plus 1.75 pp (as of 1 January 2016 — 12.75% p.a.).

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