The Bank of Russia will reduce the risk weights on mortgages to enhance the capability of granting loans

The Bank of Russia plans to set lower values of risk coefficients on mortgage loans compared to the current scale in the framework of the standard “Basel III”. Corresponding changes are contained in the draft instructions of the Bank of Russia modified taking into account proposals and comments received from market participants during the public discussion in June this year.

The introduction of a new scale of risk coefficients will free up banks ‘ capital at the applicable mortgage loans in the amount of 300 billion rubles. This will enhance the ability of banks to issue new loans, increase the profitability of mortgages in the calculation of capital and will reduce interest rates on mortgages.

The use of lower risk weights is possible only if certain requirements, including conducting a credit assessment of the borrower’s ability to service debt by calculating the debt service ratio. The new scale of risk coefficients on mortgage loans will depend on two factors: the terms of “loan/Deposit” and increased debt burden.

The recommended standard “Basel III” scale of risk coefficients on mortgage loans was adjusted to reflect the results of observation of the historical level of losses in the Russian banking sector on the basis of data of the Russian market of mortgage lending. Risk ratios will be in the range from 20 to 100%.

In addition to changing the scale of risk weights on mortgage loans, the project also provides for the following innovations:

— maintaining low risk factor is 85% for loans evaluated on an individual basis, provided to subjects of small and medium enterprises (SMEs) within a year from the date of exclusion of SMEs from the relevant register;

— reduction from 20 to 0% risk ratio on ruble claims, secured insurance coverage of EXIAR, which are the guarantee of the Russian Federation in rubles (or the payment of which are set in rubles).

The project has a limit in terms of risk factors for requirements of credit institutions, denominated in a currency other than the currency of the country of registration of the credit institution.

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