1. Financial System: Sustainability for Growth
A roundtable on Overhauling Banking Supervision: First Results
7 June 2018

2. The Bank of Russia has taken a number of steps to stabilize the banking sector
NOT EXHAUSTIVE
Adopted systemic measures to identify banks with poor financial health and reduce banks’ involvement in dubious transactions
Introduced regulations for bank groups and holding companies
Increased risk ratios for FX loans
Announced the first application of a new financial recovery process for banks involving their capital increase by the Bank of Russia through the Banking Sector Consolidation Fund
Increased risk ratios for unsecured consumer loans
2013
2014
2015
2016
2017
2018
Introduced a number of requirements under Basel III, including a capital assessment framework1
Prepared guidelines to evaluate internal capital adequacy assessment processes (ICAAP, Basel II)
Began the transition from regional to centralized oversight of lending organizations
Issued the first license to apply the IRB approach2 (Basel II)
Wider use of informed judgement when carrying out supervisory activities (in identifying parties related to a bank)
Developed of a supervision framework based on commensurate regulation: Introduced two types of banking licenses (universal and basic) with differentiated capital requirements
1 Capital adequacy ratio (N1) replaced with three new ratios 2 An approach to credit risk assessment based on internal ratings
SOURCE: Bank of Russia; press reports

3. The applied measures have improved the situation in the banking market
The banking market’s cleansing from unviable credit institutions has not only enabled sustainable players to consolidate their positions and grow assets but has also increased the overall transparency of the banking market, including through reducing the proportion of captive banks
The reduced profitability of the banking sector has been influenced by a slowdown in the Russian economy and particularly by the gradual transition of banks to less risky behavior in response to the Bank of Russia’s consistent efforts to rehabilitate the banking sector
Combined assets of the banking sector, RUB trillion
Return on capital, % xx
Active credit institutions
923
534
+50,5%
-7,1 pp
86,4
15,2
57,4
8,1
2013
20181
2013
20181
Proportion of captive banks’ assets in the combined assets of the banking sector, %
Return on assets, %
Captive banks excluding banks under resolution
19,2
1,9
16,6
-2,6 pp
-1,0 pp
0,9
9,3
4,4
2013
2018
2013
20181
1 As at the last date available 1 May 2018
SOURCE: Bank of Russia

4. A survey by the Bank of Russia on the level of satisfaction among credit institutions
The Bank of Russia surveyed 47 credit institutions, assessing the level of interaction with the banking supervisor. The average score result indicates that credit institutions are generally satisfied with the level of interaction, but see some opportunities for further improvements
1. Understanding the goals of supervision, average score (1 – completely disagree, 3 – completely agree)
The bank’s management understands the goals and objectives of the banking supervisor
2,9
The bank’s management understands key risks identified by the banking supervisor
2,9
The bank’s management understands which actions are expected from the bank to mitigate identified key risks
2,9
The bank’s management understands the division of responsibilities for supervision and control over financial market players among the various functions of the Bank of Russia
2,6
Each supervisory function coordinates its engagements with the bank
2,5
2. Interaction with the supervisor’s employees, average score (1 – completely disagree, 3 – completely agree)
The banking supervisor’s employees have a good understanding of the bank’s current business model and market niche
2,8
The banking supervisor’s employees have a good understanding of the bank’s growth strategy
2,8
The bank’s management is satisfied with its interaction with the banking supervisor’s employees
2,8
The bank’s management can promptly obtain explanations on banking supervision requirements on the bank
2,6
The banking supervisor’s employees adequately explain the purpose of information requests made to the bank
2,4
Reasonable deadlines are typically set to prepare requested information
2,0
Ø 2,6
SOURCE: Bank of Russia

5. The banking supervisor is currently focusing on increasing the stability of the banking sector
Qualitative analysis of business models used by credit institutions and strategic risk analysis
Commensurate regulation and control over capital increase
Analysis of the Internal Capital Adequacy Assessment Process (ICAAP)
Detailed assets assessment, including collateral quality and property value
Stress testing used during the supervision process to assess the financial stability of credit institutions and viability of financial recovery plans
Assessment of business continuity plans for credit institutions and IT systems (with potential inclusion in the ICAAP assessment criteria)
SOURCE: Bank of Russia

6. We are proposing a number of topics related to the further improvement of banking supervision in Russia
Discussion topics
Regulation changes in banking supervision. Competition and stable development in the banking market
The evolution of supervision at the Bank of Russia. Banks’ perspective
Informed judgement and advisory supervision
Stress testing and an optimal format of engagement
Stability assessment approaches for different categories of banks
Disclosure of material measures