AK&M will request more banking quality standards application details from banks to be rated in 2012

Sergey Korniets, the executive director of AK&M Rating Agency, recently spoke at the 8th research & practice conference “Banks. Processes. Standards. Quality” held in Ufa on March 22-23.

S. Korniets delivered the report “Application of standards by rating agencies – prospects” at the session addressing the methodology, development and application of banking quality standards (BQS).

According to S. Korniets, the availability and practical use of approved banking quality standards will improve credibility of rating scores and ensure a wider application of national ratings for regulatory purposes in the banking system.

S. Korniets informed about AK&M’s efforts to advocate BQS. In particular, AK&M submitted a note to the Association of Russian Banks (ARB) on June 20, 2011 proposing talks on the possibility and expediency of requesting additional information from a bank to be rated, namely the integration of ARB standards into the bank’s risk management and corporate governance systems, its self-certification and (later) its certification as per approved standards.

In follow-up of the session of the ARB Coordination Committee for banking quality standards (S. Korniets being one of its members), AK&M Rating Agency updated the list of information required for the assignment of a credit quality rating, adding the item “Information on the bank’s application of ARB banking quality standards”.

Since December 2011, all the contracts concluded with credit institutions have been specifying this request. For prolonged contracts, supplement 2 is also updated with this request provision.

This will additionally stimulate some of the banks to address the banking quality standardization issue, S. Korniets believes.

As S. Korniets stated for the conference members, AK&M intends to extend the scope of BQS-related information requested from the banks, setting more specific criteria: whether the bank performed self-certification as per any approved standards, whether the bank has developed internal standards regulating BQS in detail, whether the bank underwent voluntary certification under any approved standards.

“The voluntary certification as per applicable standards and the rating procedure yield independent, external, public appraisals of a bank certifying its conformity to certain highly respectable criteria and clearly indicating that cooperation with this credit institution will most likely be stable and successful. How much the application of these standards by the bank will count for its credit quality rating will largely depend on the position of the Bank of Russia. As soon as the Bank of Russia recognizes BQS in any form through any formal regulation, evading BQS may in no time become a driver impeding the rating score for any commercial bank,” S. Korniets said.

The annual research & practice conference “Banks. Processes. Standards. Quality” is traditionally hosted by the National Bank of Bashkortostan partnering with the Association of Russian Banks and the Association of Credit Institutions of Republic Bashkortostan, with assistance of the Bank of Russia. Among its invitees are representatives of the banking community, officials of public authorities, employees of regulatory and supervising authorities, experts of research, auditing and consulting companies. In particular, the conference addressed immediate measures to improve the quality of banking activities; self-regulation in the banking sphere based on quality standards; creating a voluntary certification system regulated by certain banking quality standards; prospects of BQS application by regulatory and supervising authorities as well as rating agencies; product quality standards underpinning the expansion of the scope of banking services.