Financial Crime World

Debt Payments: The Key to Unlocking Proportional Regulation

In a major move towards proportional regulation, the Russian banking sector has introduced a new framework that sets out different regulatory burdens for banks depending on their size and nature of operations.

Proportional Regulation Framework

Under the new system, banks with basic licenses are subject to fewer requirements than those with universal licenses. The former have a minimum capital requirement of RUB 300 million and must meet only five mandatory requirements, including:

  • Calculation of H1.0, H1.2, H3, H6, and H25 ratios

In contrast, banks with universal licenses have a higher minimum capital requirement of RUB 1 billion and are subject to all mandatory requirements set by the Bank of Russia. They must also be compliant with international standards, including:

  • Basel II
  • Basel III
  • Russian Accounting Standards (RAS)
  • International Financial Reporting Standards (IFRS)

Systemically Important Financial Institutions (SIBs)

Systemically Important Financial Institutions (SIBs), which include major banks and financial institutions, are subject to additional requirements, including:

  • Higher capital adequacy ratios
  • Advanced risk management approaches

The new regulatory framework is designed to provide a more proportionate approach to regulation, taking into account the different risks and challenges faced by banks of varying sizes and complexity.

Debt Payments: A Key Indicator of Bank Health

The volume of debt payments made by Russian banks has been steadily increasing in recent years, reflecting the sector’s improved health. According to data from the Bank of Russia:

  • Loans and deposits have grown significantly
    • Corporate deposits reached RUB 27.1 trillion in September 2019
    • Retail deposits reached RUB 29.4 trillion in September 2019

The banking sector’s capital adequacy ratio has also improved, with a significant majority of banks holding an acceptable level of capital under Basel III standards.

Funding Sources: A Key Driver of Bank Performance

The funding of Russian banks is primarily sourced from:

  • Corporate and retail deposits
    • Accounting for 23.8% and 30.2% respectively of total liabilities in September 2019
  • Central bank funding
    • Accounting for 12.0% of liabilities in September 2019
  • Other sources
    • Accounting for 34.0% of liabilities in September 2019

The growth of corporate and retail deposits has been steady, with:

  • Corporate deposits growing by 5.0% year-on-year to RUB 27.1 trillion in September 2019
  • Retail deposits demonstrating a growth rate of 9.8% YoY to reach RUB 29.4 trillion

Overall, the Russian banking sector is showing signs of improvement, driven by a combination of tighter regulation, active supervision, and improved funding sources. The introduction of proportional regulation is expected to further enhance the sector’s stability and resilience.