Bank of Russia outlines new measures for regulating credit concentration

Some major Russian banks have reported a significant increase in credit concentration on corporate borrowers over recent years. However, based on international and Russian experience, even large companies can become insolvent. The potential default of such borrowers may cause banks to lose their financial stability and pose risks to the financial system as a whole. Therefore, the Bank of Russia believes it is important to regulate concentration risks.

The concept outlined in the Bank of Russia’s paper covers the period until the end of 2030. Key proposals involve canceling the easing of requirements for calculating concentration ratios, gradually introducing more stringent ratio N30 for systemically important credit institutions, and specifying the consolidation perimeter.

The regulator plans to ease some current requirements. For example, for certain ratios, it will no longer be mandatory to group highly reliable companies that are operationally and financially independent as related borrowers. Additionally, the concentration on consolidated leasing and factoring bank subsidiaries will no longer need to be calculated.

The Bank of Russia proposes several mechanisms to manage risks and meet ratio targets: introduction of an ‘orange zone’ of compliance with concentration ratios, provision of guarantees by a Banking Sector Support Fund to be established, development of syndicated lending, and credit insurance instruments. The regulator also expects companies to raise more funds from capital markets.

The implementation of these proposed approaches aims to reduce credit concentration risks while allowing banks to maintain the necessary potential for granting loans to major companies.

Responses to questions raised in the paper and proposals relating to the concept of reforming credit concentration risk regulation should be sent to the Bank of Russia by July 31, 2024.