The Central Bank of Russia suspended fair value accounting and some provisioning requirements for doubtful loans at Russian banks in December 2014. This followed a precipitous slump in the Russian rouble and stock market resulting from financial sanctions imposed by the EU and US and the slide in oil prices in late 2014.
Foreign banks, however, will most likely continue with their usual accounting and provisioning practices, as required by their home supervisors. This means their Russian subsidiaries are likely to take the full force of the exchange rate sell-off and financial distress among borrowers, especially those who were borrowing foreign currency unhedged. The sharp rise in rouble interest rates – by 11.5 percentage points during 2014, including 6.5 points in one move in December – will also hurt local currency borrowers with floating rate loans or imminent refinancing needs.
