Bank of Russia tightens restrictions on lending to highly indebted borrowers and increases macroprudential requirements for general consumer loans secured by vehicle

Bank of Russia set macroprudential limits (MPLs) on unsecured loans and credits for 2024 Q4. MPLs are aimed at restricting lending to highly indebted borrowers and artificial extension of loans (credit) term. These measures will allow to limit households’ over-indebtedness and build-up of higher risks in banks. Effective from 1 November 2024, the Bank of Russia is also going to raise add-ons for general consumer loans secured by vehicle to limit circumvention of MPLs by banks.

In making this decision, the Bank of Russia Board of Directors was guided by the following.

A significant part of the unsecured loan portfolio accounts for borrowers who spend more than half of their income on debt servicing: 53% of outstanding loans as of 1 July 2024 (64% as of 1 January 2023). The loans of highly indebted borrowers become overdue more often. Therefore, their share in the banks’ loan portfolio entails the risk of the bank’s possible losses, especially in the event of stress. MPLs allow to reduce this share by improving the lending structure. In 2024 Q2, the share of loans issued to borrowers with debt service-to-income ratio (DSTI) exceeding 50% was 33% for banks and 31% for microfinance organisations (MFOs).

In order to accelerate the transition to a more balanced structure of lending, the Bank of Russia tightens MPLs for loans (credits) with high DSTI for 2024 Q4. MPLs for banks and MFOs are aligned to limit the potential for regulatory arbitrage (also taking into consideration that certain banking groups that are active on the retail market include MFOs).

MPL values for banks (excluding banks with a basic licence):

MPL values for MFOs:

Banks began to issue general consumer loans secured by vehicle more frequently. Before 2023, the share of such loans in consumer loans sector-wide was less than 1%, however, in 2024 Q4 this share exceeded 3%. Certain banks increased the share of such loans from 0 to 50%.

In 2024 Q2 nearly 40% of general consumer loans secured by vehicle were issued to borrowers with DSTI exceeding 80% (and only 12% of unsecured consumer loans). However, the economic role of collateral is insignificant, since the key characteristics of general consumer loans secured by vehicle match unsecured cash loans rather than car loans. Average effective interest rate (EIR) for such loans accounts for 27% (28% for cash loans¹, 21% for car loans²), share of loans that became 30-day delinquent three months after disbursement accounts for 1.6% (1.2% for cash loans, 0.9% for car loans).

Therefore, providing collateral in a form of vehicle allows certain banks to reduce regulatory burden, since such loans are not included in the calculation of MPLs. That said, these banks are exposed to excessive risks determined by the high level of borrower’s DSTI.

In order to limit the growth of borrowers’ debt burden and regulatory arbitrage, the Bank of Russia is increasing macroprudential requirements for banks’ capital on general consumer loans secured by vehicle with effect from 1 November 2024. Increased add-ons in the segment of DSTI 50+ will discourage issuance of secured loans to households with already high debt burden.

Add-ons to risk-weights for general consumer loans secured by vehicle, issued after 1 November 2024:

For reference: Add-ons to risk-weights for general consumer loans secured by vehicle, issued after 1 July 2024:

Transfer to a more balanced structure of consumer debt will help to reduce risks of banks and MFOs, as well as limit borrowers’ risks. The decision on the values of MPLs for 2025 Q1 will be taken by the Bank of Russia in November 2024 taking into account dynamics of households’ debt burden and lending standards.

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