In line with the draft amendments to the Bank of Russia’s Instruction on Required Ratios released on May 23, 2018, the Bank of Russia intends to take additional measures to limit forex lending risks in order to bring down systemic risks of FX debt.

The draft document provides for an increase from 100 percent to 110 percent in risk ratios on FX credit claims (and investments in debt securities) on resident exporting legal entities. In order to further reduce lending in the riskiest segment, risk ratios on mortgage loan exposure have been revised upwards from 130 percent to 150 percent. The weighted risk ratio on other FX claims on legal entities will stand at 130 percent (the current ratio is 110 percent). There remains an exception that abrogates the application of the new risk ratios to credit claims guaranteed, directly or indirectly, by the Russian government (in particular, FX credit claims backed by an EXIAR insurance policy).

A large proportion of foreign currency in the banking sector’s assets and liabilities poses risks to financial stability that may be challenged by both borrowers without FX revenues and exporters. Excessive FX debt brings higher volatility in the domestic financial market when the global market environment deteriorates. In the years to come, such risks may become exacerbated in emerging market economies, as leading central banks abandon fiscal stimuli and global markets confront tightening monetary conditions. The situation is further complicated for Russian banks by restrictions on access to external borrowing imposed by certain countries.

The changes will apply to newly issued loans after July 1, 2018. This will help distribute pressure on bank capital over time. In the event that the risks associated with the dollarization of bank assets and liabilities become more acute, the Bank of Russia may take additional measures.