Russia considers further easing of rules on risk to take heat off banks

Moscow

THE Russian central bank is considering further relaxing regulation of the banking sector, to ease the burden on banks pressured by Western sanctions and an economic slowdown, a first deputy governor of the central bank said on Tuesday.

Alexei Simanovsky, the first deputy governor, told journalists that the bank was considering temporarily relaxing rules affecting how banks calculate the risks associated with certain consumer loans with high interest rates.

Russian banks' cost of financing and loan-loss provisioning jumped last year, hurting their profits and eroding their capital as their access to Western markets was restricted due to sanctions linked to the Ukraine crisis.

Analysts say that the pressure on banks could increase this year, as the Russian economy is expected to contract by at least 3 per cent, according to the latest forecast from the economy ministry.

"We are thinking that the level of elevated risk assessment of 1.1 (110 per cent), which was set for rouble loans with an interest rate of 25-35 per cent, perhaps it's worth abolishing it for the moment," Mr Simanovsky said.

The central bank started to increase banks' cost of risk and risk coefficient for consumer loans from 2013 to cool a boom in consumer lending.

It set a risk coefficient of 1.1 for loans with a rate between 25 and 35 per cent, placing greater demands on banks' capital.

Mr Simanovsky said the central bank could return the risk coefficient to 1 for several months or until the end of the year. "To artificially weaken risk assessment is ineffective and undesirable," he said.

Mr Simanovsky added that he believed up to 300 banks were currently infringing central bank guidelines on the amount of loans they issue to one borrower or a group of related borrowers.

This hasn't changed much since 2013, he said, adding that banks in Russia's top 100 lenders were also likely infringing the guidelines but that they managed to "creatively" observe the so-called N6 requirement. "On average, (banks are) two or three times above the norm," he said.

He said central bank moves in December relaxing reserve requirements for banks and helping to shield them from a collapse in the rouble had eased pressure on banks capital adequacy ratios by 0.9 percentage point.

The decision was taken to address panic on financial markets and would also be temporary, he said. REUTERS