The Bank of Russia has extended the effect of the Regulation on assessment of credit risk on loans

On December 14, the Bank of Russia has informed of the extension of the Bank of Russia Regulation No. 2156-Y, issued on December 23, 2008 "On Assessment Specifics Of Credit Risk On the Loans, Lending and Eligible Debts" until June 30, 2010.

We remind that on December 30, 2008 the Bank of Russia has revised the procedure for lending organizations to form the reserves for possible losses on credits, according to which credit agencies were granted the right not to degrade the quality assessment of the debt service of loans under existing rules in case of:

extension of the overdue fixed debt liability term or the interest on the loan for 30 calendar days against the effective term;
loan structuring (for example, in case of change of the loan currency, change of the loan maturity term (fixed debt liability and / or interest), change of interest rate in the period from October 1, 2008;
addressing of credit for debt repayment on the loan previously provided to the borrower from October 1, 2008.

Now the RF Central Bank has extended the effect of those benefits till June 30, 2010. This measure was aimed at supporting the Russian banks in a crisis situation and in our opinion, it is justified. At the moment, despite some recovery in the global and Russian economy, there is still a considerable amount of "bad" assets in the balance sheets of the Russian credit organizations. Regulation No. 2156-Y allows the banks to create a smaller volume of reserves in crisis conditions. At the same time, it should be understood that this measure only conceals the problem but does not resolve it. In other words, it should be understood as only a temporary aid to the Russian financial system.

P.V. Trunin - Ph.D., Head of Laboratory for Monetary and Credit Policy