MOSCOW, Oct 28 (Reuters) - The Russian central bank is set next year to slightly soften capital buffer requirements on banks that assess their own credit risk, deputy governor Vasily Pozdyshev told Reuters, in a bid to encourage more lenders to take up the practice.
The move comes as the Russian central bank presses for banks to conduct in-house risk assessments, saying it allows for better management of banks’ capital cushions and could cut the cost of borrowing.
The softened regulations at this stage would apply to Sberbank and the Russian unit of Raiffeisenbank , the only two lenders the Russian central bank has authorised to calculate their own credit risk using what is called an internal ratings-based (IRB) approach, which is used under global banking regulations.
Under the reform, the central bank plans to slightly reduce the minimum amount of capital these banks must keep in their reserves to limit the risk of insolvency. This means they would have more flexibility to use funds that would otherwise be shelved.
Other banks in Russia calculate their credit risk according to central bank criteria, despite wanting to base their capital allocations on ratings by domestic ratings agencies.
Many banks believe risk assessments based on domestic ratings would not be as harsh as those made by the central bank and allow them to free up more capital for lending.
But the central bank says domestic rating agencies lack expertise for risk assessments and allows some banks to establish their own in-house risk assessment practices, which must be approved by the central bank.
Deputy Central Bank Governor Pozdyshev has said in the past that the central bank could eventually require all major banks to assess their own credit risk, a process he said could take around five years.
Sergei Grib, head of the integrated risk management division at the Russian unit of Raiffeisenbank, told Reuters that the move could make in-house risk assessments more appealing to other lenders planning to use the approach.
Alfa-Bank, Russia’s biggest private bank, has said it plans to calculate its own credit risk for its corporate business by mid-2020 and that of its retail business in 2021.
Alexander Morozov, deputy CEO of Sberbank, would not comment on how the measure could affect the lender, but insisted the central bank needs to keep the in-house assessment approach financially feasible for the country’s largest banks.
“Given the central bank’s interest in having all major banks switch to the IRB approach, it’s obvious that this approach must be financially attractive to banks,” Morozov said. (Reporting by Tatiana Voronova Writing by Gabrielle Tétrault-Farber Editing by Katya Golubkova and David Holmes)