Risk ratios on unsecured consumer loans to change

The Bank of Russia will establish new risk ratios on unsecured consumer loans. They will be applicable to consumer loans issued no earlier than 1 March 2017. The updates will become effective when Bank of Russia Ordinance No. 4292-U, dated 13 February 2017, ‘On Amending Bank of Russia Instruction No. 139-I, Dated 3 December 2012, ‘On Banks’ Required Ratios’ comes into force. The document is undergoing registration with the Ministry of Justice of the Russian Federation.

The ratios were revised because the weighted average effective interest rate (EIR) on new consumer loans dropped 7.7 pp to 20.9% during the period from 1 January 2015 till 1 January 2017¹ as the effective Federal Law, dated 21 December 2013, ‘On Consumer Loans’ capped the EIR on consumer loans, the economy was shifting towards structural liquidity surplus and inflation slowed down. The 2016 Q4 data suggest that credit institutions did not provide loans at the EIR above 45%, consumer loans at the EIR between 35% and 45% accounted for 1.4% of total consumer loans, consumer loans at the EIR between 25% and 35% – for 22.5%, consumer loans at the EIR below 25% – for 76.1%.

As the cost of borrowing funds from credit institutions is going down, the unchanged EIR points to an increased credit risk of the borrower. Therefore, the old risk ratios would signal relaxation of regulatory requirements.

The table below shows the revised risk ratios:

¹ Data from credit institutions’ reporting form 0409126 ‘Weighted Average Effective Interest Rate on Consumer Loans’ as of 1 January 2017 (excluding car loans).