Bank of Russia tightens restrictions on lending to highly indebted borrowers
The Bank of Russia has established new macroprudential limits on unsecured consumer loans for 2023 Q4. This decision was made to limit the increase in households’ over-indebtedness by discouraging lending to borrowers with high debt service-to-income (DSTI) ratios.
In making this decision, the Bank of Russia Board of Directors was guided by the following.
Unsecured consumer lending has been growing at a fast pace. The July increase in debt was the highest over the recent 12 months and reached 2% and the annual growth rate was 13.3%1 as of 1 August 2023.
Banks and microfinance organisations (MFOs) complied with the macroprudential limits (MPLs) in 2023 Q2. For banks, the share of new loans and opened, including increased, limits to borrowers with DSTI ratios2 exceeding 80% should not be higher than 25%. In 2023 Q2, it amounted to 20% for newly opened limits and 22% for granted loans (excluding credit cards).3 However, a significant part of funds was also provided through credit cards, which had been issued to borrowers with a high debt burden before the setting of MPLs. Therefore, the total share of funds provided in 2023 Q2 to borrowers with DSTI ratios exceeding 80% was 27%, down from 29% in 2023 Q1. The share of loans to highly indebted borrowers will gradually fall as the current credit card portfolio is being replaced by new credit cards under effective MPLs.
The share of loans granted by MFOs to borrowers with DSTI ratios exceeding 80% was 27% (same as in 2023 Q1), with the MPL value at 35%.
The share of long-term loans (limits) granted by banks for a period of more than five years was 2% for loans with a credit limit and 8% for loans without a credit limit,4 with the MPL value at 10%.
Banks complied with MPLs by issuing smaller loans to borrowers. The average loan size declined from ₽207,000 in 2022 Q4 (before the introduction of MPLs) to ₽187,000 in 2023 Q2.5 As a result, the share of loans with their DSTI ratios totalling
On 1 July 2023, the Bank of Russia reduced MPL values, but as of now, the indebtedness of borrowers with high DSTI ratios remains considerable: borrowers who spend more than half of their income on debt servicing account for 64% of the portfolio (loans to borrowers with DSTI ratios over 80% make up 32% of the portfolio). This poses risks for borrowers and banks in case of potential shocks. In view of the above, the Bank of Russia considers it reasonable to speed up the transition to a more balanced lending structure and tightens MPL values for 2023 Q4.
MPL values for banks (excluding banks with a basic licence):
| DSTI ratio exceeds 50%, but is below 80% | DSTI ratio exceeds 80% | Loan maturity is over 5 years | ||||
|---|---|---|---|---|---|---|
| 2023 Q3 | 2023 Q4 | 2023 Q3 | 2023 Q4 | 2023 Q3 | 2023 Q4 | |
| Percentage of the amount of issued consumer loans without credit limits | No limit | 30% | 20% | 5% | 5% | 5% |
| Percentage of the established (increased) credit limits | No limit | 20% | 20% | 5% | 5% | 5% |
MPL values for MFOs:
| DSTI ratio exceeds 50%, but is below 80% | DSTI ratio exceeds 80% | Loans maturity is over 5 years | ||||
|---|---|---|---|---|---|---|
| 2023 Q3 | 2023 Q4 | 2023 Q3 | 2023 Q4 | 2023 Q3 | 2023 Q4 | |
| Percentage of the amount of issued consumer loans without credit limits | No limit | 30% | 30% | 15% | No limit | |
| Percentage of the established (increased) credit limits | No limit | 20% | 30% | 15% | No limit | |
The new values of MPLs will reduce the amount of new loans in Q4 by 22%6 compared to the amount of loans that banks would have issued if the MPL values had not changed. Tighter MPLs will reduce the growth rate of the loan portfolio by 6 pp by the end of 2023, but will make the lending structure more balanced, thereby ultimately alleviating the debt overburden for households, and mitigating risks for banks and MFOs.
The Bank of Russia will make a decision on setting the macroprudential limits for 2024 Q1 in November 2023 considering changes in households’ debt burden and lending standards.
1 According to Reporting Form 0409115.
2 DSTI is the debt service-to-income ratio of a borrower. It is calculated as a ratio of a borrower’s average monthly payments under all loans raised to the borrower’s average monthly income.
3 According to Section 11 of Reporting Form 0409135.
4 According to Section 11 of Reporting Form 0409135.
5 According to the survey of large retail banks.
6 According to the survey of the top 30 banks.
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