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On countercyclical buffer to capital adequacy ratio

5 October 2017
Press release

The Bank of Russia Board of Directors decided to retain the countercyclical capital buffer (CCB) rate for Russian credit institutions at zero per cent of risk weighted assets.

In making its countercyclical buffer decision, the Bank of Russia recognised the factors as follows.

Credit activity dynamics. The recovery of credit activity in various lending segments is observed to be heterogeneous.

The lending to non-financial organisations segment, the largest by loan receivables, shows a sustainable trend towards a rise in loan receivables in rubles and a decline in loan receivables in foreign currency (according to credit institutions that were operating as of the latest reporting date, including banks that underwent restructuring). As of 1 September 2017, receivables in the portfolio of ruble loans to non-financial organisations grew by 4.5% since the start of the year (12-month growth stood at 4.2%). Adjusted for exchange rate revaluation, the portfolio of foreign currency loans to non-financial organisations shrank by 2.4% in January-August 2017 (a 12-month reduction was 6.1%).

The unsecured consumer lending segment sees credit activity growth. In March-July 2017, loan receivables grew by 0.8-1.5%1 monthly, while in previous periods they declined. Loan receivables have grown since the start of the year by 5.1%, and 4.9% for the twelve months. Their annual growth in the housing mortgage lending segment stays high at 12.2% as of 1 August 20172.

Against the backdrop of gradual and heterogeneous recovery of credit activity across various lending segments credit gap assessments (defined as the difference between the credit-to-GDP ratio and its long-term trend) remain negative. This suggests that credit activity is so far below a long-term trend.

Lending standards. The Bank of Russia notes a certain easing in the requirements for borrowers in the mortgage lending segment3. A wide range of banks follow this trend. In 2017 Q1, the share of newly extended mortgage loans with the initial instalment less than 20% increased from 6.8% to 14.2% and in 2017 Q2 it increased from 14.2% to 20.6%. Banks retain their solvency requirements for borrowers unchanged.

An historical data analysis shows that mortgage loans with a small initial instalment are characterised by higher credit risks of borrowers. Currently, the share of such loans in banks’ portfolios is negligible and does not pose any systemic risk. Should the banks adhere to the trend of easing the requirements for mortgage borrowers, the Bank of Russia may consider using macroprudential instruments to prevent credit risk accumulation and ensure the sustainable development of this market segment.

Capital adequacy ratio dynamics. Given the recovery of credit activity and growth in the banking sector’s financial performance, the accumulation of profit in banks’ capital is conducive to enhanced resilience of the banking sector. In January-July 2017, the share of dividends accrued by banks vis-a-vis their financial performance for 2016 stood at 25,4%. Ten banks accounted for over 90% of dividends accrued in January-July 2017. The retention of a considerable share of 2016 profit as part of the unallocated profit facilitated growth in the banking sector’s total capital adequacy ratio over 12 months from 12.3% to 13.1% as of 1 August 2017.

Taking account of uneven recovery of credit activity across various segments and the retention of negative credit gaps the Bank of Russia deems it expedient to keep the countercyclical capital buffer at a zero level.

The Bank of Russia Board of Directors will hold its next CCB rate review meeting in December 2017.

Credit institutions’ financial statements as per Form 0409115 (Section 3, Loan receivables on other consumer loans grouped into a homogeneous loan portfolio). According to credit institutions that were operating as of the latest reporting date, including banks that underwent restructuring.

2 According to credit institutions that were operating as of the latest reporting date, including banks that underwent restructuring.

3 According to the quarterly survey of banks which account for over 70% of household loan receivables.

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