More than half of Russian banks' capital comes from debt of five largest companies, Central Bank considering limiting concentration risk

MOSCOW. May 24 (Interfax) - Debt obligations to Russian banks from the five largest companies make up 56% of the capital in the banking sector, and as such, the Bank of Russia plans to gradually modify banking regulations in order to introduce additional restrictions on concentration risk, the Central Bank's Financial Stability review says.

The ratio of the debt of the largest companies to the capital of the banking sector has been actively growing since the fourth quarter of 2022, the regulator said. Banks' capital has also increased over the last year-and-a-half, so the growth of the indicator is due precisely to active lending to large businesses.

"The Russian banking sector has always been characterized by a high risk of concentration, since the needs of the largest Russian companies for debt financing were significant compared to the capabilities of the largest Russian banks in terms of the size of their capital. Due to the introduction of restrictions on financing of Russian companies by unfriendly countries in 2022, these companies began to attract financing in the domestic market. Although external debt was declining, companies took out loans to replace it, which led to an increase in the concentration of credit risk among the largest banks. Meanwhile, companies prefer to work with a small number of banks by means of bilateral agreements, without actively exploring alternative sources of raising debt, suggesting a wider distribution of risk (syndicated lending, bonds)," the Central Bank's review says.