Borrowers to be warned of over-indebtedness risks
From 1 January 2024, banks and microfinance organisations will have to calculate the debt service-to-income (DSTI) ratio of borrowers when lending to individuals and inform them in writing of the risks if more than 50% of their income is spent on loan repayment. A law to this effect, drawn up with the participation of the Bank of Russia, was passed by the State Duma.
Such interactions with borrowers will help them make informed decisions when obtaining consumer loans.
‘Our efforts to prevent over-indebtedness of borrowers were not limited to proposing legislative changes. They also included many other measures that have been taken in accordance with the Roadmap for Improving DSTI Calculations for 2021-2022,’ said Elizaveta Danilova, Director of the Financial Stability Department of the Bank of Russia. ‘Specifically, the Bank of Russia has set macroprudential limits for the first quarter that restrict the extension of long-term unsecured consumer loans to borrowers with high DSTI ratios.’
In addition, the mechanism for calculating DSTI ratios has been updated. Now, it is enough for a bank to apply to a qualified credit history bureau to calculate borrower’s average monthly payments on loans.
The Bank of Russia is also discussing regulatory changes that would allow credit institutions to use their own models to assess the income of their clients, provided that such models are approved by the regulator. The options under consideration also include exchange of data on the accounts and transactions of clients (with their consent), which may be used for credit scoring and DSTI ratio calculations in the future.