Standardised approaches grew to cover two-fifths of Raiffeisen Bank International’s (RBI) credit risk-weighted assets (RWAs) in Q3, as the lender stashed proceeds from ongoing liquidation of its Russian loans with the country’s sanctioned central bank.

During the quarter, RWAs on sovereign exposures under the standardised approach increased by 45.8% to €11.2 billion ($11.9 billion). Combined with a 3.4% reduction in RWAs under the internal ratings-based (IRB) approach to €43 billion, this expanded the standardised methodology’s reach over RBI’s credit RWAs from 37.4% to 40.2%.

This shift was largely the result of the bank liquidating IRB-modelled Russian corporate and bank exposures and placing proceeds with the Central Bank of Russia (CBR). With Russia lacking a recognised sovereign credit rating, these placements carry a punitive risk weight of 100% under the standardised approach. RBI’s chairman and chief executive Johann Strobl said the risk weight of the liquidated loans was around 20%.

The bank quantified the impact of parking cash with the Russian central bank at €5.2 billion in extra RWAs since the start of 2024.

Year on year, standardised RWAs on sovereign exposures climbed by 314%, or €8.5 billion, representing an increase in their share of total standardised credit and counterparty credit RWAs from 9.9% to 38.5%.

Over the same period, IRB RWAs slipped by 9.8%, or €4.7 billion, as exposures where the bank does not model loss-given-default or conversion factors contracted 19.3%, or €7.4 billion.

The bank’s RWAs on Russian assets totalled 106% of local assets as of end-September, up from 75.8% at end-June and 61.6% in September last year.

What is it

Basel Committee on Banking Supervision rules allow credit risk RWAs to be calculated using the standardised and internal ratings-based approaches.

Under the standardised approach, credit exposures are assessed using industry-wide risk weightings. The F-IRB approach allows banks to estimate the probability of default for their exposures, while relying on a regulator-set framework for other risk components, such as loss given default, to determine RWAs. The A-IRB approach allows banks to use their own estimates of key risk parameters: the probability of default, loss given default and exposure at default.

The finalised Basel III regulations restrict the use of the A-IRB approach for exposures to financial institutions or corporates with consolidated annual revenues exceeding €500 million.

The figures used in this article are as reported in RBI’s quarterly earnings and cover “credit, counterparty credit and dilution risks and free deliveries”, which may differ from the taxonomy in Pillar 3 templates.

Why it matters

RBI is finding it increasingly difficult to extricate itself from Russia, after both European Union regulators and Russian courts have all but killed its plan to repatriate assets through sophisticated cross-border manoeuvres. Liquidating the Russian loan book, which is down 40.6% year on year to €4.5 billion, is the bank’s next-best option to meet European supervisors’ request to decouple from the country, but CBR placements make this avenue particularly capital-intensive.

RBI may have profited handsomely from its bridge role in Russia’s sanctioned economy, but in terms of regulatory expectations, it is no closer to disentangling itself from the country than it was two-and-a-half years ago, after Moscow’s invasion of Ukraine. Compounding this, the more the bank falls back on the standardised approach, the less control it has over the capital required for its Russian exposures.

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