In a bid to protect the banking sector from possible further ruble declines, The Bank of Russia officially suggested over the weekend setting increased risk ratios on FX loans and debt investments to ensure additional capital coverage of currency risks of the banking sector. In particular, an increased risk ratio equal to 1:1 is envisaged to be imposed on FX loans issued to legal entities after April 1st 2016, and on debt securities denominated in foreign currency on transactions closed after April 1st 2016.
In addition, an increased ratio of 1:3 is to be introduced on FX loans issued to legal entities to purchase real estate. This is also applied to loans extended after April 1st 2016. An increased ratio of 1:5 is envisaged to be imposed on investments in non-residents’ securities made after April 1st 2016.
With the ruble unstable in recent years the appeal of lower interest rates that came with foreign-currency loans had increased for Russian borrowers. The collapse in the value of Russia’s currency over recent months, however, has sent the cost of those debts soaring in ruble terms.
At the end of January Business Insider reported on a letter sent to banks dated January 23, the Bank of Russia wrote “Due to the increased levels of credit and currency risks in financial markets, the Bank of Russia recommends credit institutions consider restructuring mortgage loans (including fines and penalties) to individuals in foreign currencies, including the conversion of these loans into Russian rubles.” This would mean taking some losses on the restructuring in a protective bid to stop ruble falls from further weakening the sector.
Dollar/Ruble one year chart. Courtesy: BarChart
For the announcement from Bank of Russia click here.