Bank of Russia tightens restrictions on lending to highly indebted borrowers
The Bank of Russia has reduced macroprudential limits on unsecured consumer loans for 2023 Q3. 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 and through the deliberate extension of loan maturities.
In making this decision, the Bank of Russia Board of Directors was guided by the following.
Banks and microfinance organisations (MFOs) had a comfortable margin in complying with macroprudential limits (MPLs) in 2023 Q1. For banks, the share of new loans and opened, including increased, limits to borrowers with DSTI1 exceeding 80% shall not be higher than 25%. In 2023 Q1, it amounted to 18% for the newly opened limits and 21% for the new loans (excluding credit cards).2 However, a significant part of funds was also provided by 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 Q1 to borrowers with DSTI exceeding 80% was 29%, down from 36% in 2022 Q4. 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 macroprudential limits.
The share of loans granted by MFOs to borrowers with DSTI exceeding 80% was 30% (40% in 2022 Q4), with the MPL value at 35%.
The share of long-term loans granted by banks for a period of more than five years was 2% for loans with a credit limit and 7% for loans without a credit limit, with the MPL value at 10%.
Banks managed to comply with MPLs by offering shorter-maturity and smaller loans to borrowers. This is evidenced by an increase in the share of loans from 10% in 2022 Q4 to 15% in 2023 Q1 with their DSTI totalling
The setting of MPLs in early 2023 has not led to the stagnation of the portfolio of unsecured consumer loans. Debt growth amounted to 2.5%3 in 2023 Q1 and 1.2% in April, which was driven by a higher demand for household loans. The number of loan applications increased by 15% in 2023 Q1 compared to 2022 Q4.4
Lending was also supported by some redistribution of the market in favour of banks with a historically small share of loans to borrowers with DSTI exceeding 80% and a small share of loans for a period of more than five years. In the absence of the above factor, MPLs would have had a more restraining effect on the loan portfolio dynamics.
Taking into account the adaptation of banks and MFOs to MPLs and a consistent trend in unsecured consumer lending, the Bank of Russia tightens MPLs values in order to achieve a more balanced lending structure and reduce households’ debt overburden. MPLs for 2023 Q3 are reduced by 5 pp compared to those for 2023 Q2.
MPL values for 2023 Q3:
| DSTI exceeds 80% | Loan maturity is over five years | |
|---|---|---|
| Banks (except banks with a basic licence) | 20% of the amount of issued consumer loans without a credit limit during 2023 Q3 | 5% of the amount of issued consumer loans without a credit limit during 2023 Q3 |
| 20% of the amount of established (increased) credit limits during 2023 Q3 | 5% of the amount of established (increased) credit limits during 2023 Q3 | |
| MFOs | 30% of the amount of issued consumer loans without a credit limit during 2023 Q3 | Not applicable |
| 30% of the amount of established (increased) credit limits during 2023 Q3 | Not applicable |
The reduction in MPLs will be partially offset by the planned change in the procedure for calculating DSTI on long-term loans. Banks will be able to calculate DSTI for unsecured consumer loans with maturities exceeding four years without taking into account the assumption that such loans will be repaid within 48 months.5 This will reduce the share of loans with DSTI exceeding 80% by
The Bank of Russia will make a decision on setting macroprudential limits for 2023 Q4 in August 2023 considering lending trends, households’ debt burden, and lending standards. The Bank of Russia will continue to limit the growth of households’ debt overburden by discouraging lending to highly indebted borrowers.
1 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.
2 According to Section 11 of Reporting Form 0409135.
3 According to Reporting Form 0409115. In March, the growth was 1.4%, in February — 0.5%, and in January — 0.5%.
4 According to the quarterly survey of large retail banks on cash loans.
5 Corresponding provisions are set forth by Bank of Russia Ordinance No.
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