The Central Bank began to fight the misuse of non-targeted loans

Bankers note more frequent cases when territorial divisions of the Central Bank require them to provide information on how individual borrowers spend funds from received non-targeted loans. If such information is not provided, banks have to create additional reserves for possible loan losses. Thus, the Bank of Russia began to combat the use of consumer loans by individual entrepreneurs for business purposes, which makes such loans more risky.

The National Council of the Financial Market (NCFM) sent a letter to the Bank of Russia in which it reports that the territorial divisions of the Central Bank have recently increasingly begun to require banks to control for what purposes their individual clients use non-targeted consumer loans. Moreover, in cases where the bank cannot provide information about what the citizen spent the non-targeted loan on, local authorities of the Central Bank require additional reserves to be created for such loans. “The specified law enforcement practice appears not to be based on legislation and imposes excessive requirements on credit institutions,” the NSFR said in its letter.

As Andrey Emelin, head of the National Financial Markets Service, explained to Kommersant, the Central Bank’s regulations provide for control over the expenditure of funds only in relation to loans issued for specific purposes, and do not contain rules requiring control over the expenditure of loan funds if the purpose of the loan is not specified in the agreement. However, as stated in the letter, “supervisory departments indicate that the lack of information about the actual use of the loan, the refusal of the borrower to provide information, or the inability to obtain it should be taken into account when creating a reserve as a factor of increased risk.” According to Andrei Emelin, the Bank of Russia gave clarifications, from which it follows that the credit institution must monitor whether the borrower is using a consumer loan for business purposes.

The Central Bank confirmed that it had received a letter from the NSFR and noted that a consumer loan, in accordance with the law, requires its use by the borrower for purposes not related to running a business. “Such a loan should be used exclusively for personal, household purposes; if the loan is actually taken for personal needs, then the level of risk on it, as a rule, can be predicted quite well,” the Bank of Russia explained to Kommersant. If the loan is non-standard (in term, amount, payment schedule), then banks, according to the regulator, should look at it more carefully in order to adequately assess the credit risk on it. The use of a consumer loan to run a business can lead to higher risks for banks, according to the Central Bank, and therefore the creation of additional reserves is required. “At the same time, banks must approach the process of obtaining data on the actual use of money reasonably, without violating the rights of clients,” the Bank of Russia noted.

Valery Piven, head of the ACRA financial institutions ratings group, believes that the attention of the Bank of Russia to this problem indicates its fairly high significance. “The presence of this trend suggests that the tax savings that arise when taking into account debt servicing costs are less than the benefit from obtaining a loan for an individual,” he says.

Identification of such loans, he said, may require the bank to reclassify them. In turn, according to the managing director of Expert RA, Yuri Belikov, borrowers are not required to report on where they are going to send borrowed funds, and banks are not required to report on the potential or actual directions of spending these funds by borrowers.

However, lawyers do not agree that a non-targeted consumer loan does not at all imply a declaration of the purpose of its use. According to Igor Dubov, partner at Iontsev, Lyakhovsky and Partners, a consumer loan, by virtue of legal requirements, has a specific purpose; the use of a consumer loan for business purposes is unacceptable. “In order to prevent circumvention of regulatory requirements, the territorial divisions of the Bank of Russia require control over the intended use of loans,” the lawyer is sure.

At the same time, as Andrey Emelin notes, amendments to the Central Bank regulations are now being prepared, according to which banks could be required to control the spending of non-targeted loans. According to bankers, this will lead to an increase in claims from regulators in connection with borrowers contacting them with complaints about the bank’s unlawful request for information not provided for in the contract, in violation of consumer rights, additional labor and material costs for banks, and a number of other negative consequences.

Maxim Builov