Bank of Russia starts consultations on model-based approach in banks’ DSTI calculations
The regulator has prepared changes to regulations that will allow banks to rely on their own models when calculating the debt service-to-income (DSTI) ratio of a borrower applying for an unsecured consumer loan after they have been checked and validated by the Bank of Russia.
The draft ordinance has been published to evaluate its regulatory impact. The Bank of Russia welcomes any suggestions regarding the draft until 2 December 2022.
Banks are using models to assess households’ incomes in order to make decisions on loan applications faster. Such models help assess a potential borrower’s income based on information available to the bank without collecting supporting documents. Besides, model-based assessments can be more accurate than simplified approaches currently applied by banks to calculate DSTI (average income in a region and a borrower’s potential income considering all payments on other loans).
DSTI is used in macroprudential regulation to limit the risks of households’ over‑indebtedness. During recent years, the Bank of Russia has been implementing measures to improve DSTI calculations, specifically it is studying jointly with banks the use of a model-based approach to assess borrowers’ incomes.