Bank of Russia’s policies in consumer lending push banks to build up capital to ensure resilience

The Bank of Russia has produced a report on accelerated growth in unsecured consumer lending. It studies the impact of the trend on systemic risks and the resilience of the banking sector, households’ debt burden and changes in key macroeconomic indicators, as well as their linkage to corporate lending dynamics.

According to the report, despite the banks’ higher vulnerability from an accelerated expansion in consumer lending, the Bank of Russia’s macroprudential policies are encouraging them to build up capital buffers to ensure resilience.

Consumer lending has so far supported growth in consumption and GDP. A slowdown in unsecured consumer loans is expected to lower its contribution to economic growth in the short term, but will promote a more sustainable growth path in the long term, according to the report.   

Macroprudential measures may make retail lending less appealing for banks, but will not necessarily boost corporate lending. The latter requires an economic policy that facilitates financial recovery for troubled companies or their exit from the market as well as enhances the investment climate so that efficient companies would see more incentives to invest both their own and borrowed funds into the economy.