Limit on total cost of loan for consumer and certain types of other facilities cancelled until 2023 year-end

The Bank of Russia Board of Directors decided against limiting the total cost of loan (TCL) from 16 August to 31 December 2023:

for credit institutions — for all types of consumer loans;

for consumer credit cooperatives, agricultural consumer credit cooperatives — for all types of consumer loans;

for microfinance organisations — for mortgage-backed consumer loans and POS-loans.

However, the limits will still apply to the TCL of other types of loans issued by microfinance organisations and to the TCL of all loans issued by pawnshops. The TCL shall not exceed by one-third or more the least of the following values: 292% per annum or the quarter average TCL calculated by the Bank of Russia for the relevant type of consumer loans.

This decision will:

• give lenders more flexibility in adjusting their interest rates on loans and deposits to key rate rises;
• help ensure better efficiency of the monetary policy transmission mechanism and accelerate the impact of the Bank of Russia’s decisions on the attractiveness of deposits and lending growth rates;
• help mitigate proinflationary risks more promptly.

The regulator established the moratorium period so that market participants have enough time to adapt to the new environment. Also, it factored in a two-quarter lag between the quarter when the reference TCL is established and the quarter when it is applied.

The issue of high interest-bearing bank loans will be moderated by the regulator’s decisions on macroprudential limits and buffers. In addition, the statutory requirement for all lenders to ensure that an interest rate under a consumer loan agreement shall not exceed 0.8% per day remains in effect.

The reference to the Press Service is mandatory if you intend to use this material.

16.08.2023 19.15.00