On countercyclical buffer to capital adequacy ratio
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 December 2017, annual growth rate of loan receivables in the portfolio of ruble loans to non-financial organisations stood at 4.2%1. Adjusted for exchange rate revaluation, the portfolio of foreign currency loans to non-financial organisations shrank by 5.4% in the period under review.
Growth of lending activity in unsecured consumer lending has accelerated further. Loan receivables increased by 8.7% over 12 months2. Growth in lending activity largely results from the increase in issued loans in the segment of cash loans3 of more than 300 thousand rubles maturing in more than one year. This lending segment is characterised by a relatively low weighted average effective interest rate — 16.63% p.a. (in the third quarter of 2017) and an almost unchanged creditworthiness of borrowers over 12 months.
Annual growth in loan receivables in the housing mortgage lending segment increased from 1 August 2017 by 1.6 pp to 14.4% as of 1 November 20174. Growth in lending activity in this segment is driven both by banks’ revision of their pricing conditions and easing of requirements for the down payment.
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 an ongoing easing in the requirements for borrowers in the mortgage lending segment5. A wide range of banks follow this trend. In the third quarter of 2017, the share of newly extended mortgage loans with less than 20% down payment increased from 20.6% to 29.4%. However, banks have kept creditworthiness requirements to borrowers unchanged for the past 12 months.
A historical data analysis shows that mortgage loans with a small down payment 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. In order to prevent risk accumulation in future and facilitate a sustainable development of the mortgage lending segment, the Bank of Russia decided to apply a 150% risk ratio to ruble mortgage loans with less than 20% down payment issued after 1 January 2018 irrespective of the loan value, and increase the risk ratio for ruble mortgage loans with less than 10% down payment issued after 1 January 2018 from 150% to 300%.
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. The sector overall has registered a decline in the dividend payout ratio. 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 13.8% to 14.5% as of 1 November 20176.
Taking account of uneven recovery of lending activity in the corporate and retail lending 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 March 2018.
1 According to credit institutions that were operating as of the latest reporting date, including banks that underwent restructuring.
2 Credit institutions’ financial statements as per Form 0409115 (Section 3, Loan receivables on other consumer loans grouped into a homogeneous loan portfolio) as of 1 November 2017. According to credit institutions that were operating as of the latest reporting date, including banks that underwent restructuring.
3 General purpose loans, unsecured targeted consumer loans (other than POS-loans), consumer debt refinancing loans.
4 Credit institutions’ financial statements as per Form 0409115 (Sections 1 and 3). According to credit institutions that were operating as of the latest reporting date, including banks that underwent restructuring.
5 According to the quarterly survey of banks which account for over 70% of household loan receivables.
6 According to credit institutions that were operating as of the latest reporting date, including banks that underwent restructuring and excluding banks under resolution. The capital adequacy ratio for the banking sector overall decreased over 12 months from 12.7% to 11.8% as of 1 November 2017.
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