Bank of Russia sets macroprudential limits on consumer loans
The Bank of Russia has set macroprudential limits on unsecured consumer loans (microloans) for 2023 Q1 for banks with a universal licence and microfinance organisations (MFOs). This measure is to limit the increase in households’ over‑indebtedness by discouraging lending to borrowers with high deb service‑to‑income (DSTI) ratios and through the deliberate extension of loan (microloan) maturities.
Making its decision, the Bank of Russia Board of Directors relied on the following factors.
Unsecured consumer lending has been expanding steadily fast (in August—October 2022, the monthly growth of households’ outstanding loans averaged 0.9%)1 and remains a priority segment for banks because of its high margin. Unsecured consumer loans issued to borrowers with DSTI2 above 80% accounted for 32%3 in 2022 Q3 (vs 28% in 2022 Q2). The proportion of consumer loans for more than five years stays high (15%4 in July—September 2022). The share of microloans issued to borrowers whose DSTI exceeded 80% reached 41%5 in 2022 Q2 (vs 38% in 2022 Q1).
A further increase in households’ over-indebtedness amid the structural transformation of the economy might involve additional macroeconomic risks. If people face problems servicing their loans and microloans, this might cause a contraction of demand in the economy, while banks will have to write off bad loans, which will reduce their potential to lend to the economy.
To limit the risks related to the growth of households’ debt burden, the Bank of Russia set the following macroprudential limits for 2023 Q1.
| DSTI exceeds 80% | Loan maturity is over 5 years | |
| Banks (except banks with a basic licence) | 25% of the amount of issued consumer loans without a credit limit during 2023 Q1 | 10% of the amount of issued consumer loans without a credit limit during 2023 Q1 |
| 25% of the amount of established (increased) credit limits during 2023 Q1 | 10% of the amount of established (increased) credit limits during 2023 Q1 | |
| Microfinance organisations | 35% of the amount of issued consumer microloans without a credit limit during 2023 Q1 | Not applicable |
| 35% of the amount of established (increased) credit limits during 2023 Q1 | Not applicable |
The macroprudential limits will be applicable to consumer loans (microloans) that will be issued or acquired by banks and MFOs, as well as to consumer loans (microloans), the limit on which will be set (raised) during the said period.
The introduction of the macroprudential limits will ensure a more balanced structure of consumer lending and microfinance without creating additional requirements for banks’ and MFOs’ capital.6
The macroprudential limits are differentiated for banks and MFOs because their borrowers’ profiles differ (the level of risk of MFOs’ customers is relatively higher). As the limits are set for banks and MFOs simultaneously, this measure is not expected to cause a transition of a significant number of customers from banks to MFOs.
As for banks with a basic licence, it would be unreasonable to set macroprudential limits for them right now as their contribution to households’ debt burden is minor. Individuals’ overall debt on unsecured consumer loans to banks with a basic licence amounts to 9 billion rubles (0.1% of the banking sector’s unsecured consumer loan portfolio). Besides, the maximum capital of banks with a basic licence is limited to 1 billion rubles, due to which customers are not likely to transition to them from banks with a universal licence.
The measures adopted will influence banks unevenly as their portfolios have different percentages of unsecured consumer loans issued to borrowers with high DSTI and for long maturities. The limits introduced are expected to affect no more than 10% of the amount of unsecured consumer loans granted by the banking sector as a whole.
The Bank of Russia will make a decision on setting macroprudential limits for 2023 Q2 in February 2023 considering changes in households’ debt burden and lending standards.
2 DSTI is calculated as the ratio of a borrower’s average monthly payments on all loans and microloans raised to the borrower’s average monthly income.
3 According to Reporting Form 0409704.
4 According to credit history bureaus’ data.
5 According to Reporting Forms 0420840 and 0420846.
6 The procedure for applying enforcement measures to banks and MFOs failing to comply with the macroprudential limits is stipulated by Clauses
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