Support measures for banks in 2024: cancellations, temporary extensions, and new regulation (15.11.2023)

The Bank of Russia has decided not to extend a number of easing measures expiring in 2023. Credit institutions (CIs) now have sufficient financial resilience and high profitability. The measures have ensured the protection and support that they were intended for, and their further application would be unreasonable as they could discourage banks from risk management using their own resources. Nevertheless, the integration of certain strategic decisions into the regulation will continue as they take into account the impact of the asset blocking, lessons learnt from the crisis, and the current national specifics.

Measures to be cancelled

• The easing of the conditions for compliance with the liquidity coverage ratio (LCR), as well as non-application of enforcement measures in the case of a failure to comply with the net stable funding ratio (NSFR) stipulated for systemically important credit institutions (SICIs). The cancellation of the easing for the LCR is needed to improve the situation with the management of short-term liquidity by SICIs, extend the funding base, and even out the competition among banks. Besides, to simplify CIs’ transition to the ratio they shall comply with, they will be able to use irrevocable credit lines (ICLs) that will be opened to them.
  
  The requirement to comply with the LCR calculated considering the ICLs at the level of 100% will be applicable from 1 March 2024. Until this date, banks are recommended to maintain the actual values of the ratio not below the level of 2023 Q3 as this is planned to be taken into account when the first limit for an ICL will be established in order to avoid any motivation to understate the actual values of the LCR. The details on the cancellation of the easing for the LCR and the mechanism for providing ICLs will be published later.
  
  The easing for the NSFR is to be cancelled on 31 December 2023.
• Non-application of the capital deduction, increased risk ratios, and provisions for transactions to buy back shares (stakes) from non-residents deciding to sell their Russian business, provided that they have special permits.¹ The measure was not widely demanded, and its cancellation will only have a minor effect on the capital ratios.
• The requirements for CIs—settlement depositories (CIs—SDs) and non-bank credit institutions—central counterparties (NCIs—CCs) to include their own blocked assets in the calculation of the capital adequacy ratios with the risk weight of 100% and to exclude clients’ blocked assets² from the calculations of the concentration, capital adequacy and liquidity coverage ratios and their own assets — from the calculation of the liquidity coverage ratios. The specifics of the incorporation by CIs of blocked assets into the calculations of the ratios are taken into account in the regulation.³
• The permit to take into account profits in capital when CIs buy back their own Eurobonds⁴ without their official invalidation. Besides, the CIs that have used this measure will be able to recognise their profits in their capital until the redemption of the repurchased Eurobonds.
• Non-application of enforcement measures for a CI’s failure to submit the information about the organisation of internal capital adequacy assessment processes (ICAAP) for 2022 on an individual and consolidated basis. The measure was applied to reduce the regulatory burden on CIs. In 2024, it is planned to resume the collection of the information about the state of banks’ and banking groups’ risk management systems and to assess their quality within the supervision.
• Postponement of loss provisioning for loans and contingent credit liabilities (CCLs) to small and medium-sized enterprises (SMEs) and individuals (if payments are overdue for less than 90 calendar days), considering the temporary zeroing-out of the capital adequacy buffers and the instalments for loss provisioning for blocked assets. The easing is currently used by approximately 20 banks, with its overall effect on capital totalling less than ?18 billion, whereas the cancellation of the easing will not entail a violation of the ratios by them.
• The recommendation to restructure loans (microloans) issued to borrowers facing difficulties with fulfilling their obligations due to the effective restrictions, as well as to suspend the enforcement proceedings associated with the sale of the mortgaged property where the mortgaged property is the only housing and the procedure for the eviction of such borrowers in connection with the normalisation of the economic situation and the legal approval of the mechanism for loan repayment holidays granted on a permanent basis.⁵

Measures planned⁶ to be extended, including in a modified form:

With regard to the measures to support borrowers / loan affordability

• Through 31 January 2025⁷ — the easing for the assessment of borrowers—servicemen’s and their family members’ risks, as well as SMEs whose founders are servicemen: CIs are allowed to make decisions not to decrease their assessments of such borrowers’ financial position, the quality of debt servicing, the quality category of collaterals and loans, other assets, and CCLs.
• Through 31 December 2024 — the recommendation to restructure loans (microloans) issued to SMEs operating in the regions with the medium response level to provide additional financial support to SMEs. The earlier signed loan (microloan) agreements may be changed on the conditions of the suspension of the fulfilment of borrowers’ obligations for a time period agreed upon with the creditors without charging any penalties or fines.
• Through 31 December 2024 — the option for CIs not to calculate debt service-to-income ratios for loans (microloans) issued to borrowers registered in the new territories⁸ and not to include such loans (microloans) in the calculation of the macroprudential limits. Besides, it is also planned to entitle CIs not to apply risk-weight add-ons to such loans (microloans).⁹
• Through 31 December 2024 — the easing in relation to the formal criteria for assessing credit risk and loss provisioning for loans (claims, CCLs), stipulated in the loan agreements signed by borrowers—legal entities (LEs) to do business in the new territories. In addition, it is planned to adjust the parameters for decreasing the reserve requirements for loans issued for agriculture and housing construction development, provided that there are officially confirmed risk decrease factors. The decision is aimed at improving the affordability of funding for borrowers in the said regions.
• Through 31 March 2024 — the suspension of the limit on the total cost of credit¹⁰ (TCC) due to the need to even out the market average based on current market data. Without the said measure, the limit for 2024 Q1 would have been set based on the market average of the TCC for 2023 Q3 (considering the two-quarter lag between the quarter of the calculation of the reference TCC and the quarter of its use), that is, would have ignored the effect of the key rate increase and considerably reduced the affordability of retail loans.

With regard to other measures

• Through 31 December 2024 — the right not to disclose the information that is sensitive to sanction risk,¹¹ including about CIs’ ownership structure, members of their management bodies and other officials, important conditions of reorganisation, material facts affecting financial and business operations of a CI that is reorganised through merger, acquisition, or transformation.
• Through 31 December 2024 — CIs’ obligation. A similar approach will remain effective in relation to the disclosure of banks’ reporting on the Bank of Russia website, as well as the information on banks’ securities issues.¹³ This ensures a balance between market participants’ need for information and the need to limit banks’ and their clients’ risks.
• Through 31 December 2024 — the use of the list of offshore zones approved by the Bank of Russia Board of Directors¹⁴ for the assessment of the extent of offshore residents’ influence on CIs’ management, considering that non-residents’ withdrawal from CIs’ authorised capital is hindered.
• Through 31 December 2024 — the option of early termination of CIs’ liabilities on subordinated instruments to persons from unfriendly states if they are separated together with blocked assets into a special LE. The procedure for the Bank of Russia’s approval of the list of assets and liabilities for the purposes of sanctioned banks’ reorganisation in the form of a spin-off of a LE will also be extended for the same period.
• Through 31 December 2024 — the option for CIs to include in their capital subordinate substitute bonds issued to replace similar Eurobonds for investors from Russia and friendly countries to receive payments on them.

Measures to remain effective until they are incorporated into the regulation, including in a modified form:

• Instalments for loss provisioning for blocked unrecoverable assets¹⁶ for ten years for CIs (until 2032) and for five years for CIs—SDs and NCIs—CCs (until 2027).¹⁷ Instalments imply that CIs, CIs-SDs, and NCIs—CCs are to uniformly reduce the net value (that is, net of provisions) of such assets. The provisioning procedure and schedule are planned to become effective in the regulation¹⁸ from 2025, and before the effective date there will be temporary decisions.
• The option to include SMEs’ loans (claims, CCLs) of up to ?50 million (previously — up to ?10 million) in the portfolio of homogeneous loans when a borrower’s financial position is assessed as medium, as well as when it is assessed based on banks’ in-house indicators of creditworthiness. The approaches regarding loans are planned to become effective in the regulation one month after the publication of the changes¹⁹ (approximately in 2024 H1), and before the effective date there will be a temporary decision. The changes related to claims and CCLs have already been integrated into the regulation.²⁰
• Differentiation of sureties (independent guarantees) of regional guarantee organisations (RGOs) based on the quality categories of collaterals taken into account to minimise the amount of provisions to be made (in a modified form). Besides, the current temporary approach to assessing the credit quality of RGOs’ sureties based on the ranking of JSC Russian Small and Medium Business Corporation²¹ will be replaced with the Bank of Russia’s more risk-sensitive assessment method to become effective from 2024 — at first, through modification of the temporary decision, and after the approval of the method in the documents of Russia’s Ministry of Economic Development, it will be incorporated into the regulation.
• Change in the requirements for compliance with the limits on open foreign currency positions (OFCPs).
  Until the end of 2023, non-compliance with the limits, through no fault of the bank, on a short OFCP for up to 15 business days inclusive (over the past 40 days) is not deemed to be a violation (when foreign currency assets are redeemed in rubles). This approach will be continued and integrated into the new instruction on the OFCP calculation.²² Besides, if the limits on OFCPs are exceeded once (for up to five business days inclusive over the past 30 days), it will be allowed not to consider such non-compliance as a violation, regardless of the reasons. According to the effective regulation (without taking into account the easing), a failure to comply with the limits on OFCPs even for one business day is deemed to be a violation of the ratio (however, enforcement measures are applied if the limits are exceeded for six or more days). The new regulation is planned to become effective from 1 July 2024, and before the effective date there will be a temporary decision.
• Expansion of the list of CIs entitled to use, before the effective date, the calculated value of the internal loss multiplier²³ when measuring operational risk (OR) and the permit to start using it from the first day of any calendar month. These provisions are planned to become effective one month after the publication of the changes²⁴ (approximately in 2024 H1), and before the effective date there will be a temporary decision. However, the option for CIs with high fee incomes (expenses) to measure OR based on the basic indicator has not been extended.²⁵
• Cancellation of the option to use Russia’s country risk assessments for measuring market risk. The change is planned to become effective in the regulation from 1 July 2024, and before the effective date there will be a temporary decision. A similar approach has already been integrated into the procedure for calculating the ratios.²⁷
• The option for settlement non-bank credit institutions (SNCIs) to open correspondent accounts with banks—residents of countries, other than unfriendly states, regardless of whether they have international ratings or not, but with a tighter requirement for the concentration to ensure risk control. This option is expected to become effective in the regulation before the end of 2023.²⁸
• The option for CIs to use the list of offshore zones effective until 1 July 2023 for the purpose of calculating the required ratios for claims that arose before 1 July 2023.²⁹ The effective period of this measure is unlimited. It is planned to be incorporated into the regulation in a modified form in 2024.