IMF published its staff report and selected issues report in the context of the 2017 Article IV consultation with the Russian Federation. Directors welcomed the steps taken to increase the resilience of the financial system, including an improved bank resolution mechanism. They encouraged the authorities to revamp the statutory bail-in legislation while keeping in mind financial stability implications. While the CBR-administered open bank resolution framework has some positive features, it is not yet consistent with international standards.
The staff report highlights that the banking sector’s performance has been improving over the past year, with banks’ deposit funding experiencing healthy growth and the banking system now in a structural liquidity surplus. Banks’ profitability is increasing—although it varies greatly across banks—on the back of higher net interest margins and lower provisioning on stabilized nonperforming loans, which after rising for two years have settled at about 9.5%. The Capital Adequacy Ratio remained stable overall and increased moderately in the past few months to nearly 13%, against a regulatory minimum of 8%, with a common equity tier 1 (CET1) ratio of 9.2% in relation to a phased-in Basel III capital requirement of 4.5%. The Central Bank of Russia (CBR) closed 110 credit institutions in 2016, compared to 101 in 2015, continuing to target mostly small banks that are weak and/or involved in dubious transactions, bringing the number of total credit institutions to 616, from 923 at the end of 2013. The authorities have taken actions to support financial stability.
The report reveals that the CBR has initiated some elements of an Asset Quality Review, through the newly created Risk Assessment Department, for the entire banking system, and the review is expected to be completed by the end of 2018. The Central Bank also tightened macro-prudential requirements to reduce dollarization by setting higher capital risk-weights for foreign exchange lending by banks to unhedged borrowers; strengthened stress testing by adjusting for potential misclassification of loans and linked the stress-test results to supervisory action; established a tiered supervisory framework for banks; and defined a capital surcharge for ten domestic systemically important banks. The banking system’s performance is improving and the authorities should continue with implementing last year’s FSAP recommendations. Further strengthening the effectiveness of the anti-money laundering and combating the financing of terrorism framework, including through measures related to politically exposed persons and entity transparency, will support the authorities’ efforts to address financial crimes related to tax evasion and corruption.
Keywords: Europe, Russia, Banking, Basel III, Capital Adequacy, Resolution Framework, Article IV, IMF
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