The deposit fund will dilute the risks of loans

The Bank of Russia plans to use the surplus of the deposit insurance fund to solve the problem of concentration of bank lending risks, which was the result of sanctions. It is planned to create a special fund that will issue guarantees for both existing loans and newly issued ones, and the option of the fund’s participation in syndicated loans is also being considered. Experts believe that against the backdrop of rare revocations of bank licenses in recent years, such use of the Deposit Insurance Agency (DIA) fund may be useful for the market.

On Friday, March 1, at a meeting of bankers with the leadership of the Central Bank, organized by the Association of Banks of Russia (ADB), the first deputy chairman of the regulator, Dmitry Tulin, announced that he was working on the idea of ​​​​using the surplus of the deposit insurance fund to combat the problem of consolidation of borrowers in banks. According to him, after February 24, 2022, many banks were forced to help their clients by issuing large loans to them; as a result, they increased the concentration of loans per borrower, which carries potential risks. At the same time, the Central Bank has recently revoked few banking licenses; funds are accumulating in the DIA fund, so some of them can be used to benefit the banking system, Mr. Tulin believes.

The idea is that the fund will issue guarantees to banks on the client’s loan, that is, in essence, the fund becomes the borrower’s lender, thereby reducing the concentration of this borrower in the bank, while the credit institution will continue to work with this asset. Also, according to Dmitry Tulin, the option of assigning claims on loans to the fund is being discussed, but it is more complex. “If banks cannot or do not want to agree on risk syndication with each other, they will negotiate with the fund,” he added.

Who will manage this fund is a matter for discussion. Mr. Tulin believes that this could be a DIA or some kind of management company, but in the case of an agency, additional functions will have to be defined for it. The proposal will be formulated and published as a consultation report by mid-year. Then, after collecting the opinions of market participants, the Central Bank will make a decision. However, the top manager of the Bank of Russia believes that this will not happen this year.

The DIA did not comment on the Central Bank’s initiative. But the head of the agency, Andrei Melnikov, who spoke at the same meeting, said that last year was actually the first year when the fund began to accumulate funds – before that it was spent on paying off loans from the Central Bank.

Experts also agree that it is logical to discuss possible alternative uses of funds collected in the deposit insurance fund. According to the managing director of the Expert RA rating agency, Yuri Belikov, we are probably talking about some kind of centralization and administration of syndicated lending to the largest enterprises, financial support for projects of high economic significance. “Due to regulatory restrictions on the concentration of credit risks imposed on creditor banks, the largest borrowers in the economy must obtain loans from a number of credit institutions at once and resort to syndicated lending schemes for the implementation of large projects,” he points out. However, the syndicated lending market, in fact, did not have specific administration and regulation, and previously such transactions were organized mainly by foreign banks. According to Mr. Belikov, even simple administration and structuring of transactions, as well as their legal support, would already become a significant function that could trigger the recovery and growth of the syndicated lending market. “If the fund is able to partially finance such transactions, it would become even easier for creditor banks to participate in the financing of large projects in terms of concentration of credit risks,” he is sure.

At the same time, the Central Bank plans to cancel relaxations on existing concentration standards, experts indicate. As Valery Piven, head of the ACRA financial institutions ratings group, notes, “if a fund is created and part of the credit risks are transferred to it, banks will be able to avoid the risk of capital shortage, which to some extent may become a factor in the growth of their lending activity in other areas.”

Maxim Builov