Bank of Russia sets national countercyclical capital buffer at zero per cent of risk-weighted assets
The Bank of Russia Board of Directors has decided to set the rate of the national countercyclical capital buffer for Russian banks’ capital adequacy ratios at zero per cent of risk-weighted assets.
Making its decision on the rate of the national countercyclical capital buffer, the Bank of Russia Board of Directors relied on the following factors.
Lending trends and credit risks
Lending trends vary in different segments of the economy.
The annual growth of corporate lending slowed down slightly, specifically from 11.2% as of 1 July to 10.4% as of 1 September 2021. In the first half of the year, companies demonstrated higher demand for loans, seeking to borrow funds at the lowest interest rates before the key rate increase.
Speaking of mortgage lending, the Government changed the terms of its subsidised mortgage lending programme beginning from 1 July 2021 and simultaneously expanded the family mortgage programme now encompassing families having one child born on 1 January 2018 and later. The revision of the terms of these programmes helped stabilise the pace of mortgage lending expansion in July—August, with the annual growth rate in this segment equalling 20%. This level conforms to a well-balanced path of mortgage lending development, which would not involve any risks to financial stability. To maintain the mortgage lending standards, the Bank of Russia earlier made the decision to raise buffers for mortgage loans with a down payment of 15% to 20% since 1 August 2021.
The growth of unsecured consumer loans continue to speed up, reaching 18.5%1 as of 1 September 2021. To limit the risks associated with the surge in unsecured consumer lending, the Bank of Russia made the decision in July 2021 to raise macroprudential risk-weight add-ons since 1 October 2021.
According to 2021 Q2 statistics, the accelerated growth in unsecured consumer lending is coupled with a worsening of lending standards. The portion of the highest-risk loans issued to borrowers whose debt service-to-income ratio (DSTI) ratios exceed 80% edged up to 30.3% in 2021 Q2, which is higher than the pre-pandemic level (26.7%). As banks accumulate loans disbursed to borrowers with high DSTI ratios faster, this augments the risks of the retail loan portfolio.
Moreover, banks have been expanding the portion of long-term consumer loans with maturities of over five years. In 2021 Q2, such loans accounted for 20.7% of the total amount of disbursed cash loans, as compared to no more than 11% before the pandemic. Banks have extended loan maturities seeking to lend maximum amounts allowed by their credit policies. The average amount of loans issued for over five years equals 747,000 rubles, whereas that of loans with maturities of up to five years — 242,000 rubles.2 Long-term consumer loans involve higher risks. The frequency of borrowers’ defaults on such loans within the first six months after the disbursement is twice as high as that on loans with maturities of less than five years.
In this regard, the Bank of Russia plans to revise the effective DSTI calculation procedure. Average monthly payments on long-term consumer loans will be calculated based on the assumption that such loans shall be repaid within four years (currently, this period is five years). This will increase DSTI ratios for long-term consumer loans. Concurrently, in order to discourage banks to issue long-term consumer loans and generally to lend money to borrowers whose DSTI ratios are excessively high, the Bank of Russia plans to consider in 2021 Q4 the possibility of an increase in macroprudential risk-weight add-ons for such loans.
Given that the growth in corporate and mortgage lending has slowed down and that the Bank of Russia has sector-specific instruments to limit consumer lending risks, it would be unreasonable to set a positive rate of the national countercyclical buffer.
1 According to Section 3 of Reporting Form 0409115 (for operating credit institutions, including restructured ones).
2 According to the 2021 Q2 statistics from the three largest credit history bureaus.
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