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Duma May Force Banks to Retain 20% Risk in Loan Securitization

21.11.2013 17:33 / Interfax

State Duma deputies are debating statutory amendments which direct banks to retain 20% risk in loan securitization, Duma Financial Market Committee Head Natalia Burykina said at the Investment Council session on Thursday.

“There has been some uncertainty as to the risk retention requirement. We set the mark at 20%, despite experts’ opinion that it should be lower”, she said. Burykina said that the Financial Market Committee will review the amendments on Friday, 22 November, with the bill expected to be passed by the Duma in second reading on 10 December.

Amendments are part of the Regulation of Financial Assets Securitization bill, passed in the first reading in October 2009.

VP at Sberbank Anna Popova says the CB proposes to stipulate the norm in a regulation instead of a statute. “The 20% risk retention requirement for the originator bank raises concern. Actually, this is accepted global practice. Originators retain part of the risk, to make these banks understand them… Does it make sense to fix the 20% in the legislative act?"

She explained to the press later that the norm could be part of a Bank of Russia regulation. She says the risk situation is constantly changing, therefore flexibility is vital, and there is no chance of quickly adjusting the requirement if is stipulated by law.

“Banks want to retain merely 5% on their books, which gives them the right to sell more. Duma wants to keep 20%, to make banks accept more risks and have a clear understanding that if something goes wrong, they risk 20% of the total issue”, said Head of Russian Private Equity Fund (RFPI) Kirill Dmitriev.

He added that the statutory amendments will feature project finance proposals by the RFPI working group. The document will include amendments on SPVs with special bankruptcy procedures, nominee and escrow account opening, pledging future income from infrastructure projects and project bond holders’ subordination.

Popova also said that deputies plan to review Civil Code amendments related to pledge. Today, a contract may limit further pledge of property. “Now (according to drafted amendments – Ed.) the general norm prevents limitation of pledge rights. This could prove time-consuming and expensive. At the end of the day, the pledge holder will feel more at ease in some cases where there is no further pledge to follow”, she said.

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