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Russian central bank softens credit risk requirements for securitization deals

The Central Bank of the Russian Federation introduced a new credit risk assessment procedure for banks participating in securitization transactions that will lower capital requirements if the quality and transparency of a securitization transaction are high.

The new procedure will abolish the 1250% risk ratio requirement for investments in junior tranches and will only be applicable if information on asset quality and transaction structure are lacking, the central bank said in the disclosure.

Additionally, fixed risk ratio values will be replaced with risk ratios calculated according to a new supervisory formula — a move that could result in a ratio as low as 15% for deals with high asset quality and a transparent structure.

However, banks issuing a loan will have the option to stick to ratios applied before the securitization transaction, the regulator added.

The bank is also introducing a "simple, transparent and comparable securitization" concept which will be subject to preferential credit risk assessment and could result in lowering risk ratios by up to 10% for investment into senior tranches and up to 15% in all other tranches.