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Major Russian companies want banks to use domestic ratings to calculate capital

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Major Russian companies want banks to use domestic ratings to calculate capital

Gas producer PJSC Gazprom and Russia's other large borrowers have been calling on the Central Bank of the Russian Federation to apply domestic ratings in its new financial regulations, arguing that this approach would be more beneficial for the local banking sector and for the economy, Reuters reported Aug. 8.

Gazprom's Deputy Chief Executive Famil Sadygov told the newswire that applying domestic ratings in the Basel III reform in Russia would lower pressure on banks' capital and reduce lending rates.

The Russian central bank wants local lenders to use its own in-house assessment methods to comply with the Basel III rules and calculate required capital, but Russian companies have questioned this approach. The Russian finance ministry also voiced an opinion that capital buffers for banks under the new rules should be calculated according to domestic ratings, Reuters noted.

Russian Finance Minister Anton Siluanov asked the central bank in July to postpone reforms that would force banks to boost their capital buffers under the Basel III rules until the domestic ratings system, which has been actively developed since Western sanctions were introduced against Russia in 2014, can be applied in that process, according to Reuters.

In addition, heads of Gazprom, PAO Tatneft, PAO NOVATEK and Severgroup CJSC, asked President Vladimir Putin in a letter to support the use of domestic ratings, arguing that it would demonstrate "the true credit risks" of borrowers. The executives also said the domestic ratings approach would make lending cheaper, bolster financial stability and ease the refinancing of external debt, while also increasing competitiveness of the Russian economy and supporting the nation's economic security, Reuters noted, adding that the problem is likely to become a subject of discussions at governmental level.

However, the Russian central bank still remains committed to its approach, arguing that it would help local banks release significantly more capital for lending to the economy, compared with the domestic ratings method, Reuters noted.