Lending rates and volumes follow the policy of the Central Bank
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Consumer loan rates have recently broken multi-month records. According to the Bank of Russia, by the end of October they had already grown to the levels of last summer, and taking into account what has happened and the expected increase in the key rate, they may well continue to grow at the beginning of 2024. Against this background, throughout the three autumn months, the issuance of consumer loans decreased, being under pressure and regulatory requirements. The pre-New Year season can only slow down this movement, but not reverse the trend.
According to data published by the Bank of Russia on Friday, December 8 (.xlsx) for loans to individuals, rates in this segment reached multi-month highs. Thus, in October, the weighted average rate on retail loans for a period of one to three years reached 18.1% per annum, which is a record since June 2022. Over the month, the growth was more than 1 percentage point. The weighted average rate on loans for a period of six months to a year rose to 17.7% per annum, adding 0.5 percentage points over the month.
This dynamics correlates with the dynamics of the Central Bank key rate. Thus, the weighted average interest rates on loans have increased by 1.3–2.9 percentage points since July, over the same period the key rate increased by 4.5 percentage points, to 13%, and in September the increase was 1 percentage point. P. At the very end of October, the Central Bank accepted an unexpected decision to immediately raise the key rate by 2 percentage points, but the consequences of this decision on the credit market became evident in the following months. “The size of interest rates on loans to individuals is most influenced by the size of the key rate and the risk coefficient premiums increased from September 1 of this year,” notes Stanislav Tyves, deputy chairman of Uralsib Bank. VTB also notes that the key rate is now at its peak this year, which has an impact on the cost of loans.
Together with strict regulation of the unsecured loan segment, this reduces demand, market participants note.
“The trend that began in the fall will continue into the winter; as a result, next year we will see a slowdown in the growth of retail lending,” VTB believes. According to Frank RG, the volume of loans issued to citizens has been falling for three months in a row. In September there was the most serious decline in cash loans – by 20% (to RUB 592 billion). In October, the decrease was 8% (to 544 billion rubles), in November – 16%, to 459 billion rubles, and below the level of 500 billion rubles. the figure dropped for the first time since February this year.
The growth in consumer loan rates is spurred by some predictability of the Central Bank’s steps in implementing monetary policy – with inflation expectations remaining at elevated levels, inflation expectations and expectations of an increase in the cost of risk, says Yuri Belikov, managing director of the Expert RA rating agency. “The cost of risk will not remain as low as in 2023, even just based on economic cycles, not to mention the fact that the measure of credit risk is directly dependent on the leverage of borrowers,” he says. As a result, according to the director of the group of ratings of financial institutions in the NKR, Yegor Lopatin, by the end of the year we can expect a further increase in rates on unsecured loans to individuals.
Experts do not rule out that at the end of the year the market may support the traditional December growth in demand for loans.
However, the decline in issuance will continue next year. Egor Lopatin believes that in the first quarter of 2024 the segment is likely to cool due to high rates and regulatory measures, as well as taking into account the seasonal factor. According to Stanislav Tyves, in the first quarter of 2024, due to seasonality, a drop of another 10–15% is expected. According to Yuri Belikov, there is potential for further growth in loan rates. At the same time, in his opinion, against the backdrop of macroprudential limits, high rates and general debt load, “the growth rate of the consumer loan portfolio in 2024 may show a two-fold slowdown.”
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