OREANDA-NEWS. August 05, 2015. In 2015 Q1, the Bank of Russia stress tested microfinance organisations (MFOs) for credit risks for the first time with regard to capital adequacy when the required reserve level and overdue debt volumes change.

The Bank of Russia stress tested major MFOs holding about 40% of the market.

According to test results, major MFOs will not need additional capitalisation to comply with mandatory economic ratio NMO1 in 2015. However, if overdue microloans persist at the current level by late 2017 companies may need at least 0.5 billion rubles of additional capital, and at least 1.3 billion rubles in case the quality of microloan portfolio deteriorates. Meanwhile, MFOs have to create microloan loss provisions in the amount of at least 30% of the calculated provision by late 2015, and a 100% provision by late 2017.

The testing concludes that participants of household microloan market must improve their lending methods with regard to borrower selection and monitoring with a view to improving the quality of loan portfolio and reducing the share of overdue debt in the medium term.

The Bank of Russia did not assess liquidity risks under stress testing. They are supposed to be analysed after the scheduled amending of the procedure for calculating MFO liquidity ratio.

The Bank of Russia will further hold stress testing at least once every six months under the extended method that considers liquidity risks.

In 2015 Q3, the Bank of Russia intends to stress test credit consumer cooperatives.

The Bank of Russia notes that stress testing provides for scenario analysis but not the assessment of probability of certain scenario realisation.