News

Add-ons to risk weights depending on DSTI ratio and EIR

25 June 2019

Press release

In order to curb risks related to increasing debt burden of households, the Bank of Russia Board of Directors decided to set the following add-ons to risk weights on unsecured consumer loans in rubles extended from 1 October 2019 depending on the borrower’s debt service to income ratio¹ (DSTI ratio) and the effective interest rate (EIR).

Add-ons to risk weights on unsecured consumer loans in rubles extended from 1 October 2019 for which credit institutions must calculate the borrower’s debt service to income ratio:

		DSTI ratio range, %:
		0-30	30-40	40-50	50-60	60-70	70-80	80+
EIR range, %:	0-10	0.3	0.3	0.3	0.6	0.7	0.9	1.1
	10-15	0.5	0.5	0.5	0.7	0.8	1.0	1.2
	15-20	0.7	0.7	0.7	1.1	1.3	1.4	1.6
	20-25	1.0	1.0	1.0	1.5	1.7	1.8	2.0
	25-30	1.3	1.3	1.3	1.8	1.9	2.0	2.2
	30-35	2.0	2.0	2.0	2.1	2.2	2.3	2.5
	35+	5.0	5.0	5.0	5.0	5.0	5.0	5.0

Add-ons to risk weights on unsecured consumer loans in rubles extended from 1 October 2019 for which credit institutions do not need to calculate the borrower’s debt service to income ratio:

EIR range, %:	0-10	10-15	15-20	20-25	25-30	30-35	35+
Value	0.6	0.7	1.1	1.5	1.8	2.1	5.0

For reference: Currently effective Add-ons to risk weights on unsecured consumer loans in rubles extended from 1 April to 1 October 2019:

EIR range, %:	0-10	10-15	15-20	20-25	25-30	30-35	35+
Value	0	0.5	0.7	1.0	1.3	2.0	5.0

The set add-ons to risk weights are based on the Bank of Russia’s analysis of portfolios of major banks engaged in unsecured consumer lending with regard to the historical dynamics of credit risk depending on the EIR and DSTI ratio and take into account the results of consultations with the banking sector.

Unsecured consumer lending is growing at an accelerated pace having reached 25.3% as of 1 May 2019. In the last few months, growth of households’ debt burden on unsecured consumer loans has accelerated. According to the bank survey, in 2019 Q1, the share of loans with DSTI² ratio of over 80% was 9.7%.

Increasing add-ons to risk weights will discourage banks from extending unsecured consumer loans to borrowers with already high DSTI ratio. This measure will also help increase banks’ capital cushion to cover losses if materialising external or internal risks lead to a drop in household incomes and a deterioration of quality of consumer loans.

_______________

¹ In accordance with Bank of Russia Ordinance No. 4892-U, dated 31 August 2018, ‘On Types and Characteristics of Assets for Which Risk Ratio Buffers are Set and on the Methodology for Applying These Buffers to the Said Types of Assets for Credit Institutions to Calculate Their Capital Adequacy Ratios’, starting 1 October 2019, credit institutions must calculate DSTI ratio in line with the rules established by the Bank of Russia when extending new loans or increasing credit card limits.

² DSTI ratio estimate according to credit institutions’ data; until 1 October 2019, the banks’ methodology may not account for provisions of Bank of Russia Ordinance No. 4892-U, dated 31 August 2018.

The reference to the Press Service is mandatory if you intend to use this material.

Save as PDF