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. In 2022 Q1, the Bank of Russia Board of Directors will consider whether it is reasonable to set a positive rate of the national countercyclical buffer.

Making its decision, the Board of Directors relied on the following factors.

Activity in corporate and retail lending remains high. The growth rates of debt in all lending segments either approached or reached the highest level since the outbreak of the pandemic.

After a slowdown in October, the growth of unsecured consumer lending sped up again in November. Debt rose by 1.6%¹ (1.7% seasonally adjusted) over November. As of 1 December 2021, debt increased by 19.7% in annualised terms, which is the maximum rate since the beginning of the pandemic. The portion of bank loans issued to borrowers with high debt service-to-income ratios (DSTI over 80%) is still large. In 2021 Q3, such loans accounted for 31%² in total disbursements.

On 1 January 2022 and 1 February 2022, the requirements for calculating borrowers’ DSTI³ will be toughened. As result, the average risk ratio will increase by 20 pp, which will help moderate banks’ credit activity.

Furthermore, the Bank of Russia Board of Directors has approved the regulation on macroprudential limits. After its registration, the regulator will consider the issue of establishing macroprudential limits on consumer loans for banks and microfinance organisations beginning from 1 July 2022.

As regards mortgage lending, after a gradual stabilisation of debt growth rates in July—October following the revision of the government subsidised mortgage lending programme, the demand for loans in November was again elevated and debt was up by 2.3%.⁴ As of 1 December 2021, the annual growth of mortgage lending equalled 30.1%.⁴ The Bank of Russia will explore the data about the impact of monetary policy on credit activity and about lending standards for 2021 Q4 and assess whether additional macroprudential policy measures in mortgage lending should be taken in 2022 Q1.

Speaking of corporate lending, the annual growth rate of outstanding loans reached 12.2% as of 1 December 2021, which is the peak value since 2015. However, this increase was partially driven by lending to construction companies within the transition to project finance in housing construction using escrow accounts. Net of loans issued to construction companies, the annual increase in debt totalled 9.5% as of 1 December 2021, which is more than in previous years.

The economy returned to the growth path observed before the outbreak of the pandemic. As a result, banks’ risks lowered. As of the end of the first eleven months of 2021, the banking sector’s net profit amounted to 2.3 trillion rubles. However, banks’ capital cushion before buffers to capital adequacy ratios edged up by as little as 0.3 trillion rubles over the said period, totalling 6.1 trillion rubles as of 1 December 2021. The macroprudential capital buffer was up by 0.2 trillion rubles, equalling 0.8 trillion rubles as of 1 December 2021.

As credit activity remains high, banks should accumulate capital cushions they will be able to use in the future in the case of stress events, to prevent the need to introduce temporary regulatory easing. To this end, the Bank of Russia can use the countercyclical capital buffer in 2022.

Considering the above and due to the expansion of the list of macroprudential instruments, the Bank of Russia plans to release a consultation paper in early 2022 to discuss proposals on macroprudential limits, the countercyclical buffer, and risk-weight add-ons with market participants.

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