IMF published its staff report and selected issues report in context of the 2019 Article IV consultation with the Russian Federation. IMF Directors encouraged the authorities to continue to enhance bank supervision and regulation, also welcoming the recent macro-prudential measures to curb unsecured consumer lending. However, they noted that additional macro-prudential measures may be needed if lending growth does not moderate. They also recommended continued efforts to complete the consolidation of the banking sector. Directors underscored the importance of having a credible strategy for returning rehabilitated banks to the private sector in a way that is consistent with increasing competition among banks.
The staff report highlighted that the banking sector has been performing well, putting it in a position to support growth. The aggregate returns on assets and equity both increased in 2018, mainly driven by the largest banks. The system-wide capital adequacy ratio stayed close to 12%. NPLs remain high (at 10.3% in March) but are adequately provisioned. The Central Bank of Russia (CBR) has continued its cleanup of the banking sector, bringing the total number of credit institutions to 469, as of May 01, from over 900 in 2013. A bank for core and non-core assets (bad bank) has been set up to deal with the impaired assets of banks in open resolution, with a size (in book value) of nearly 2% of GDP. The authorities hope for a recovery rate of about 40% through actions, including asset sales to the market. The IMF staff emphasized the importance of having a strategy for returning rehabilitated banks to the private sector in a way consistent with increasing competition among banks. Staff also recommended that CBR should assess the viability of NPLs and ensure bank incentives to write off these loans.
Rapid retail lending growth has spurred a regulatory response, but more action may be needed. To mitigate financial stability risks from the sector, CBR raised risk-weights several times in 2018 and once in April 2019. CBR, in 2018, made further changes to its supervisory and regulatory framework, which it should continue to develop. Capital adequacy requirements can now be augmented with risk-based buffers and CBR has set the Basel III net stable funding ratio (NSFR) for systemically important banks (SIBs). Additionally, a set of formal criteria were adopted to guide bank resolution decisions and 149 banks with capital of less than RUB 1 billion were switched to a restricted basic license, under which they will be subject to simplified regulation but prohibited from most overseas operations. Nevertheless, the legal framework for related party exposures and the draft law upgrading the framework for banks’ external auditors could be strengthened further. The final increase of the capital conservation buffer and capital surcharge for SIBs should be implemented as scheduled to enable banks to achieve fully loaded levels by January 2020. Supervision could be enhanced by enabling CBR to exercise professional judgment as part of an explicit early intervention mechanism.
Keywords: Europe, Russia, Banking, Article IV, NPLs, Basel III, NSFR, Resolution, Financial Stability, CBR, Macro-Prudential Policy, IMF
Previous ArticleIAIS Publishes Newsletter for March 2019
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.