All systemically important banks to switch to advanced credit risk assessment approach by 2030
By 1 January 2030, systemically important credit institutions (SICIs) shall switch to the model-based approach to credit risk assessment for regulatory purposes — the internal ratings-based approach (IRBA). The State Duma has adopted the relevant draft law in the second reading.
When following the IRBA, banks apply their own models based on the statistics on borrower defaults. This allows a more efficient and precise assessment of credit risk and capital required to cover it.
Switching to the IRBA should improve SICIs’ risk management processes and make bank risks more transparent to the regulator. Moreover, if all SICIs apply the IRBA, this will help even out competition conditions in terms of regulatory requirements.
By 1 January 2030, all SICIs shall ensure that IRBA models are applied to the share of assets which the Bank of Russia will specify in the related regulation. The transition period is established taking into account the time banks need to prepare for the modifications and obtain the Bank of Russia’s permits to apply the IRBA.
The regulator permits a bank to switch to the IRBA only after checking (validating) its models. The Bank of Russia plans to start step-by-step validation of SICIs’ IRBA models from 2025. Each SICI shall coordinate its individual plans for switching to the IRBA with the regulator in advance.
At present, credit institutions owning assets worth at least ₽500 billion can switch to the IRBA voluntarily. Four systemically important banks are already using the IRBA.
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