The Central Bank of the Russian Federation will not force banks to lend to non-returnable or too risky projects, but is ready to “release” a part of risks into the system to finance transformation projects, Central Bank Chairman Elvira Nabiullina said at the session “Russian Economy: Modern Challenges and Points of Support” at SPIEF. “Structural restructuring of the economy should not be at the expense of shifting more risks to depositors, creditors,” she said.

At the same time, she pointed out that risks have increased in bank lending. “And what to do in this situation? First. Based on the principle of financial sustainability, we should not force banks to lend to non-repayable or too risky projects at the expense of putting depositors and customers at risk,” the Central Bank head said. Therefore, the Bank of Russia is going to adjust regulation to “release some part of the risk into the banking system,” she said.

“Because in principle we have a banking system pandemic passed normally, now we are looking at who and how, to what extent additional capitalization is needed. But with such a blow of sanctions in principle, the financial system coped with it decently,” Nabiullina said.

In the future, the Central Bank will look at how to differentiate regulation so that banks finance primarily transformational, green and ESG projects.

“We expect in cooperation with the government criteria for transformational projects that are open to private initiative. So that under the guise of bank lending we don’t just have directive financing. That is, these should be market-based projects, but according to certain criteria,” she pointed out.

“Second. We understand that banks should not replace development institutions, we understand that these transformation projects will have a limited commercial component, there may not always be a cash flow that allows you to return money to creditors and depositors. Therefore, we need hybrid mechanisms, development institutions, and the role of sureties and guarantees in this period is seriously increasing,” Nabiullina said. She also pointed out the importance of changing the ratio of debt and equity financing.

“We have in our country not a lack of debt, but a lack of capital. And debt is generally a ‘shoulder’, it is when you have a project, you have capital and with the help of a loan you can expand production. We are substituting one thing for another. Of course, we need to create opportunities for direct investment,” Nabiullina said.

She also drew attention to the need to finance innovations. “Traditional institutions are not the best way to finance innovation, venture capital financing is not something that is financed through banks. We do not have a system of business annals, venture funds,” Nabiullina said, adding that the task of the Central Bank and the government is to create private structures that finance innovation.