The Central Bank cut the limit on borrowed citizens to banks
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The Bank of Russia is once again significantly tightening lending for banks to citizens with a high debt burden – immediately by 15 percentage points (p.p.). Now, such borrowers can account for no more than 5% of loans issued per quarter. The limit is introduced from October. The Central Bank explains its actions by high rates of lending growth, while the debts of borrowers with a high burden already account for more than 60% of the total.
Central Bank for the second time toughens for banks and microfinance organizations (MFIs) macroprudential limits (MPL), which limit the share of lending to highly loaded borrowers. Moreover, if before this the reduction in limits was soft, by 5 p.p., now the step of tightening is sharper – immediately 15 p.p., up to 5% of the volume of loans granted for the quarter for banks and up to 15% for MFIs. The new limits will come into effect from October. The tightening did not affect the issuance of long-term consumer loans for a period of more than five years (the limit is set at 5%).
A new limit is also being introduced – for borrowers who use 50-80% of their income to pay off debts. For banks and MFIs, it will be 30% in the next quarter for ordinary consumer loans, 20% for loans with a limit.
A debt burden of 50-80% of income is indeed already a very high level, which, together with other mandatory payments, indicates that the borrower most likely does not save anything, severely limits spending and still does not have a financial cushion, notes Yury Belikov, Managing Director for Validation Expert RA. “The payment discipline of such people is very sensitive to fluctuations in inflation, changes in the labor market,” he adds.
New tightening was needed because of the high growth rates of lending.
According to the Bank of Russia, the increase in the volume of consumer loans in July was the largest in the last year – 2%, and the annual growth rate was 13.3% by the beginning of August.
At the same time, the debts of risky borrowers remain large-scale: 64% of the portfolio falls on borrowers who spend more than half of their income on debts, of which almost a third is on those who give creditors 80% of their income.
The Central Bank is confident that as the portfolio is updated, the share of loans to borrowers with a high debt load will decrease, and the tightening of the LPL will reduce the growth rate of the loan portfolio by 6 percentage points. Now banks are meeting the limits by reducing the size of the loan, the Central Bank explains.
recent promotion a key rate of up to 12% entails an increase in the cost of funding, which means it pushes for an increase in lending rates – “this, in turn, leads to a further increase in the loan burden on households, while the regulator has long pointed to a large share of indebted citizens”, notes banking expert Olga Ulyanova. She calls the next tightening “an expected move that is designed to deter players from the temptation to shift the burden of the rate hike to borrowers.”
The MPL, which has been operating in Russia only since the beginning of the year, has proven itself well in the international practice of regulating the risks of the financial system, believes B1 partner Gennady Shinin. At the moment, the risks are unevenly distributed, the expert explains, the MPL will harmonize the situation:
“At the moment, MPL can lead to loss of income for banks. However, the reverse story – the accumulation of risky lending – threatens to lose capital in the future if banks fail to balance the risks, so in terms of the long-term effect, everyone will benefit.
According to Yuri Belikov, it was possible to start introducing MPL as early as 2021, before “the average debt burden of citizens reached alarming proportions,” but “the impact of the lending crackdown that occurred in 2020 on the debt load parameters” was already observed. Now, the expert emphasizes, “we have to rely on all the constraining factors in the aggregate: demand restriction due to rising rates, bank failures due to the deterioration in the solvency of borrowers and SMEs.”
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