PLC Global Finance update for February 2010: Russian Federation

Practical Law UK Articles 5-501-4891 (Approx. 3 pages)

PLC Global Finance update for February 2010: Russian Federation

by White & Case LLP

Financial institutions

CBR rules on mandatory economic ratios were amended in line with Basel II regulations

Central Bank Directive No. 2324-U amending Instruction No. 110-I "On Mandatory Economic Ratios for Banks"

On 3 November 2009, the Central Bank issued Directive No. 2324-U amending Instruction No. 110-I "On Mandatory Economic Ratios for Banks," dated 16 January 2004.

The Directive will enter into force on 1 July 2010.

The Directive amends, among other things, the rules on calculation of a bank's net worth (capital) ratio (N1) by both:

Including an operational risk amount in its calculation (in addition to credit and market risk).
Revising the methods for assessing credit risk.

The amendments seek to implement Basel II regulations.

In particular, credit claims against, and guarantees by, foreign central banks, governments or banks will be assessed based on the Country Risk Classifications of the Participants to the Arrangement on Officially Supported Export Credits (as opposed to the "developed country" criterion currently used). Information on such Classifications will be published on the Central Bank's website.

Following these amendments, the reference to "developed country" was similarly changed in a number of other Central Bank regulations, specifically: Directives Nos. 2321-U, 2322-U and 2323-U, dated 3 November 2009, amended Regulation No. 313-P on calculation of a market risk amount and Regulations Nos. 283-P and 254 P on the provisions for potential losses, respectively.

Central Bank Regulation No. 346-P "On the Procedure for Calculation of an Operational Risk Amount"

On 3 November 2009 the Central Bank issued Regulation No. 346-P "On the Procedure for Calculation of an Operational Risk Amount."

The Regulation will enter into force on 1 July 2010.

The Regulation sets out the procedure for the calculation of an operational risk amount to be included in the calculation of a bank's net worth (capital) ratio (N1).

The operational risk amount will be calculated annually based on a profit and loss statement and will be included in the calculation of the N1 ratio to varying degrees over certain periods as follows:

As of 1 August 2010 - 40% of the amount calculated according to the Regulation.
As of 1 August 2011 - 70%.
As of 1 August 2012 – 100%.

Amended rules for making portfolios of similar loans

On 4 December 2009, the Central Bank issued Directive No. 2355-U amending its Regulation No. 254-P "On the Formation of Provisions by Credit Organisations to Cover Potential Losses in Loans, Loan Indebtedness and Other Similar Indebtedness," dated 26 March 2004.

The Directive entered into force on 28 December 2009.

The Directive amends Central Bank Regulation No. 254-P, which provides that credit organisations must establish provisions to cover possible losses arising out of operations with financial instruments (for example, loans granted by such organisations). The provisions may be established for portfolios of similar loans.

The amendments provide that, among other things, loans granted to individuals may be included in a loan portfolio if both:

The amount of the loan does not exceed RUB1 million, or RUB6 million for housing mortgage loans.
The borrower's financial position is at least "average".

These loans may be kept in the portfolio even if the borrower's financial position worsens. This rule also applies to loans granted to small and medium businesses.

Banks will be required to disclose commissions on withdrawal of cash from ATMs

On 29 January 2010 the State Duma adopted, in the first reading, Draft Law No. 264550-5 amending the Law on Banks.

The Draft Law requires banks to indicate their commission fees on ATM cash withdrawals, when such withdrawals are made. The information must be displayed on the ATM screen and reflected in a receipt.

The provisions of the Draft Law will apply if adopted by the State Duma in three readings, approved by the Federation Council, signed by the President, and officially published.

PLC Global Finance update for February 2010: Russian Federation | Practical Law