Bank of Russia to release banks’ macroprudential capital cushion on consumer loans and to return to pre-pandemic macroprudential requirements
The Bank of Russia plans to release the macroprudential buffer accumulated by banks on unsecured consumer loans and return to using the matrix of macroprudential add-ons, which was in effect before the pandemic.
Amid the active rebound of the Russian economy after the pandemic, there is a pick-up in growth in the segment of unsecured consumer lending. In March 2021, the debt growth rate was 1.9%, which is in line with the average annualised growth rate over the past three months (more than 15%; seasonally adjusted).
Analysis of data received from the largest credit history bureaus suggests that the restructuring period had been completed by 1 January 2021 for the majority of consumer loans restructured during the pandemic (about 75%). Given the credit quality of loans that were restructured in 2020,1 it can be expected that the losses on restructured loans will not exceed
By 1 July 2021, banks are to set up loan loss provisions in full amount for household and SME loans, which have been restructured because of the pandemic. Due to the above, the Bank of Russia intends to cancel macroprudential add-ons on unsecured consumer loans issued before 1 April 2020. This measure will help free up banks’ capital worth 124 billion rubles on a permanent basis. This will support their capital adequacy requirements given the potential need to set up additional provisions for bad restructured loans after the termination of regulatory easing. Moreover, banks will be able to use this capital stock to cover losses on other loans, specifically SME loans.
At the same time, given the accelerated growth of consumer lending and elevated households’ debt burden,2 the Bank of Russia deems it reasonable to consider in the near term the issue of resuming, starting 1 July 2021, the practice of using the pre-pandemic add-ons on unsecured consumer loans (see Table 1).
The increase in add-ons will help reduce the incentives of banks to expand lending by issuing loans to borrowers with a high debt to income (DTI) ratio, as well as gradually restore the value of the buffer and insure banks’ resilience to potential stress scenarios. In the future, if authorised by law to establish direct quantitative restrictions,3 the Bank of Russia will predominantly use this instrument to limit the risks of a high DTI ratio of households.
Table 1. Proposes add-ons to risk weights on unsecured ruble-denominated consumer loans issued from 1 July 2021
|
|
DTI range, % |
||||||||
|
No DTI |
|
|
|
|
|
|
More than 80 |
||
|
EIR range*, %: |
|
0.6 |
0.3 |
0.3 |
0.3 |
0.6 |
0.7 |
0.9 |
1.1 |
|
|
0.7 |
0.5 |
0.5 |
0.5 |
0.7 |
0.8 |
1.0 |
1.2 |
|
|
|
1.1 |
0.7 |
0.7 |
0.7 |
1.1 |
1.3 |
1.4 |
1.6 |
|
|
|
1.5 |
1.0 |
1.0 |
1.0 |
1.5 |
1.7 |
1.8 |
2.0 |
|
|
|
1.8 |
1.3 |
1.3 |
1.3 |
1.8 |
1.9 |
2.0 |
2.2 |
|
* EIR — effective interest rate on a consumer loan.
Table 2. Add-ons to risk weights on unsecured ruble-denominated consumer loans effective from 1 September 2020
|
|
DTI range, % |
||||||||
|
No DTI |
|
|
|
|
|
|
More than 80 |
||
|
DTI range, % |
|
0.1 |
n/a* |
n/a |
n/a |
0.1 |
0.3 |
0.5 |
0.8 |
|
|
0.2 |
n/a |
n/a |
n/a |
0.2 |
0.4 |
0.6 |
0.9 |
|
|
|
0.6 |
0.2 |
0.2 |
0.2 |
0.6 |
0.9 |
1.0 |
1.3 |
|
|
|
1.0 |
0.5 |
0.5 |
0.5 |
1.0 |
1.3 |
1.4 |
1.7 |
|
|
|
1.4 |
0.9 |
0.9 |
0.9 |
1.4 |
1.6 |
1.8 |
2.0 |
|
* n/a — no add-on is applied to risk weight.
1 The annual cost of risk for them is
2 The debt service ratio (the ratio of scheduled loan payments to the total household disposable income) grew from 10.7% to 11.7% in 2020.
3 Limitation of the share of risky loans (with high DTI) in the volume of issued unsecured consumer loans.