Banks were denied additional benefits for borrowers in new regions

As Kommersant learned, Russian banks asked for additional regulatory relief for borrowers of the DPR, LPR, Kherson and Zaporozhye regions, but did not find understanding from the Central Bank. In particular, the regulator refused long-term installment plans for reserving part of the collateral and stage-by-stage reservation in case of their loss. Experts support the Central Bank, noting that the development of lending in new regions is “a matter of strategic choice of banks,” and they are obliged to ensure that risks are covered with capital.

“Kommersant” got acquainted with the proposals of the Association of Banks of Russia (ADB), sent in early August to the Central Bank, to introduce regulatory relief for banks that would reduce the risks in terms of lending to borrowers registered in the “new territories” (DPR, LPR, Kherson and Zaporozhye regions). In particular, the association asked to provide an installment plan for the reservation for a period of 10 years (by analogy with blocked assets, see “Kommersant” dated September 23, 2022), if “facts of a decrease in the fair value of collateral” have been identified. In case of their loss due to “destruction of facilities,” a phased reservation was proposed over the course of a year.

However, the regulator did not support the bankers’ proposals (Kommersant got acquainted with the letter from the Bank of Russia). At the end of August, First Deputy Chairman of the Central Bank Dmitry Tulin responded to the ADB that economic activity in the “new territories” and adjacent to them is now “characterized by an increased level of risk,” and movable and immovable property “has an inherent risk of depreciation or complete loss.”

The Central Bank believes that banks need to “search for additional ways to compensate for credit risk, including choosing borrowers with a stable financial position or other forms of loan collateral.”

The Bank of Russia and the ADB declined to comment.

A number of benefits already apply to the finances of residents of the “new territories”. Thus, by order of Vladimir Putin, it is prohibited to collect debts from them until the beginning of 2026. The Central Bank also introduced relaxations for banks operating in these regions, establishing reduced risk weights for local borrowers (see “Kommersant” dated May 23).

“The measures taken made it possible to significantly reduce the burden on the capital of Russian banks and maintain lending potential,” notes Mr. Tulin. At the same time, he mentions that additional regulatory relaxations for reserving loans for borrowers or counterparties registered or operating in “new constituent entities of the Russian Federation” are being considered. The details in the letter are not specified. But it says that there are no other relaxations planned at the moment.

According to a Kommersant source familiar with the situation, in the DPR, LPR, Kherson and Zaporozhye regions of the Russian Federation, the cost of risk is 2–2.5 times higher than in other regions, but “with the prospect of a decrease over the horizon of three years.” The situation is similar with the reservation norm, Kommersant’s interlocutor clarifies.

Experts consider the regulator’s position to be justified. “Relaxations for the reflection of losses are fair when the entire banking sector, without exception, is faced with a one-time and global stress, as happened in 2020 and 2022,” says Yuri Belikov, managing director for validation at Expert RA. “But active operations in new regions are strategic decisions of individual banks. If they open new markets, they must ensure that capital covers the risks inherent in those markets fairly.” Otherwise, the expert emphasizes, it will be difficult to objectively assess the financial position of banks, and this is important for regulation.

If the collateral is lost or depreciated, it is necessary to build up reserves to a level that corresponds to the category of loan quality and other characteristics of the borrower that affect the calculation of reserves, Mr. Belikov adds: “If this process is extended over time, reserves for specific loans are reduced for a long time without reason.” Moreover, he clarifies, if something happened to the collateral, this may indicate a deterioration in the financial situation of the borrower, and then the question arises whether it is necessary to add even more reserves.

Olga Sherunkova