The Bank's risk management system has undergone significant changes, addressing new challenges of the last 10 years.
The period from the early 2000s until 2008 was marked by absence of any considerable defaults in the market and the resulting lack of the required statistics for development of efficient risk management models, thus there was no regular risk management in Russia in those years. The Bank created major part of its provisions on the growth of the loan portfolio, which doubled every year until 2008. High net interest margin excessively covered any risks, for this reason the provisions did not put pressure on the Bank's financial results.
The crisis of 2008-2009 demonstrated existing problems and the necessity of changes to be introduced into the risk management approach. Problem loans provisions started to contribute a major part of created provisions.
Starting from 2009, a significant work has been carried out for building a new risk management culture, including implementation of the corporate customers ratings model. Within a few years, the best practice was implemented in the daily risk management procedure of Bank Saint Petersburg and started to be used for evaluation of each loan project.
After implementation of leading risk management practices based on the accumulated expertise and loss record, since 2013 a “new” quality of the loan portfolio has been established with an integrated risk assessment system. "Old" problem loans granted before 2013 continued to contribute a major share to the total cost of risk for the last 5 years and kept providing a significant negative impact on the Bank's financial results.
Due to consistent establishment of the new risk management culture, starting from 2013 the Bank has obtained a “new” quality of the loan portfolio, which accounted for 88% of the loan portfolio as of January 1, 2020. To sum up, due to both repayment and writing off of problem loans granted before 2013, their share in the total loan portfolio is decreasing every year (accounted for 6% as of January 1, 2020), and the remaining problem loans were covered by provisions to a great extent.
For four years, starting with 2016, the cost of risk for pre-2013 loan vintages decreased from a peak of 2.7% to 1.0%, while the cost of risk for new loans remains stable at around 1.0%.
The Cost of risk dynamics allow the Bank to be well on the way to considerable reduction of the cost of risk and respective growth of ROAE.