Pawnshops ask the Central Bank to lift restrictions on the total cost of loans for them
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Pawnshops are asking to cancel for them restrictions on the total cost of loans (TCP), as was done for other market participants last week. Against the backdrop of an increase in the key rate, funding for pawnshops has risen in price by 3–5 percentage points. Operating expenses are also growing: for the implementation of new standards, personnel costs. All this can lead to a decrease in the profitability of the business and, as a result, the transition of some players to the zone of commission stores not controlled by the Central Bank. However, the regulator believes that the current high TIC values of pawnshops will allow them to compensate for the losses.
The National Association of Pawnshops (NOL) appealed to the Central Bank with a request to cancel the restrictions on the PSK for them, as was done by the regulator for other participants in the debt financing market (see “Kommersant” dated August 17). A letter from the industry association was sent to the Bank of Russia on August 21, Kommersant got acquainted with the document. The authors argue that the absence of pawnshops in the list of organizations that do not apply the CPS restriction puts the industry “in an extremely disadvantageous and non-market position.”
Pawnshops attract debt financing, and after the growth of the key rate, the cost of funding increased significantly: “the interest rate on bank loans was increased to 17–20% (by 5–7 percentage points) per annum, the rate on loans to the founders rose to the same levels.”
1907 companies
was in the register of pawnshops of the Central Bank as of August 21, 2023.
In addition, pawnshops incur costs due to an increase in the regulatory burden: the introduction of the ENP and OSBU, as well as the introduction of the GIIS DMDC and the physical marking of jewelry (see “Kommersant” dated January 12, 2022), notes Lyudmila Gribok, chairman of the board of the Regional Association of Pawnshops.
The shortage of personnel is also growing, adds Stanislav Boronin, general director of the Fianit pawnshop network. This leads to a decrease in the profitability of pawnshops, which creates the risk of some players moving into the gray segment, market participants conclude. Similar letters were sent to the Bank of Russia by most industry associations.
As of August 21, 1907 companies are in the register of pawnshops. The loan portfolio as of March 31 was RUB 45 billion.
According to Stanislav Boronin, pawnshops could not be included in the list of those industries for which the restrictions on the PSK are removed before the end of the year, therefore they do not attract deposits from individuals. However, last year’s experience has shown that this is an effective measure to support the industry, he adds, thanks to which many market participants, including not the largest ones, were able to survive the period of turbulence.
If pawnshops do not receive support similar to last year (a moratorium on the use of PSK was introduced for all credit and non-credit financial institutions), the market may lose the vast majority of small and medium-sized participants, Aleksey Lazutin, chairman of the NOL board, fears. “And some, even large players, will look for opportunities to legitimately use additional products and services that can partially help offset the decisions of the Bank of Russia,” he admits.
“The refusal of the Bank of Russia to lift the PSK restrictions for pawnshops will lead to negative consequences for the industry: the cost of raising funds will increase, while income will not change,” Artem Yevstratov, co-owner of the First Jewelery chain of pawnshops, agrees.
Loan portfolios of pawnshops in 2023 are not growing in terms of the number of clients and the amount of collateral.
“This happens for several reasons: the outflow of labor migrants, competition with banks and MFIs, as well as a decrease in jewelry in circulation due to the introduction of VAT for all jewelry sellers, which increased the cost of finished products,” explains Mr. Evstratov. It is interesting that the loan portfolio of pawnshops is hundreds of times smaller than other market participants, and they bear the full regulatory burden, which is immeasurable with their capabilities, he complains.
The Central Bank, however, does not consider it necessary to cancel the TIC restrictions for pawnshops: “The TIC values for pawnshops remain quite high, and the maximum TIC values allow pawnshops to smooth out the effect of the key rate increase.”
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