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Bank of Russia retains national countercyclical capital buffer and risk-weight add-ons

19 March 2021
Press release

The Bank of Russia Board of Directors has decided to retain the countercyclical capital buffer rate for Russian credit institutions at zero per cent of risk-weighted assets and to leave unchanged the macroprudential risk-weight add-ons applied to calculate capital adequacy ratios.

Making its decision to preserve the national countercyclical capital buffer andrisk-weight add-ons, the Bank of Russia Board of Directors relied on the following factors.

Lending activity and credit risks

The growth rate of bank lending to the economy remains high. This trend is driven by accommodative monetary policy, the regulatory easing granted by the Bank of Russia, and government lending support programmes. Nonetheless, lending growth is uneven across segments. The increase in lending to non-financial organisations is steady, while retail lending growth is accelerating, primarily owing to mortgage loans.

The corporate loan portfolio expanded by 9.9%1 in 2020, which is nearly two times more than in 2019 (5.8%). Lending continued to grow in 2021, with the annual increase in the portfolio of outstanding corporate loans reaching 11.4% as of 1 March 2021.

The segment of unsecured consumer lending continues to recover after the decline in the first months of the pandemic. The annual growth of outstanding loans equalled 8.6%2 as of 1 February 2021. Overall, banks maintain their lending standards. Households’ average debt burden on newly issued unsecured consumer loans totalled 62%3 in 2020 Q4 (vs 61% in 2020 Q3). The slight rise in the average debt burden per borrower in 2020 Q4 involves no threat to financial stability and was because individual banks returned to lending standards they had applied before the outbreak of the pandemic.

The annual growth of outstanding loans in the housing mortgage segment remains high, with the rise in ruble-denominated mortgage loans reaching 22% as of 1 February 2021.4 The expansion of the mortgage loan portfolio is largely driven by lending in the primary housing market. The annual increase in outstanding ruble-denominated mortgage loans secured by claims under equity construction contracts equalled 41.9% as of 1 February 2021. Despite the significant rise in lending, banks changed their lending standards in Q4 only slightly. The debt service-to-income ratio on mortgage loans granted in Q4 averaged 56% (vs 54% in Q3). The percentage of mortgage loans with the down payment of 10% to 20% in the total amount of issued mortgage loans remained almost the same, namely 31.8% in Q4 (vs 31.7% in Q3).

The quality of the mortgage loan portfolio also largely depends on how balanced the growth of real estate prices is. In 2020, real estate prices in the primary market surged by 12%.5 If the rise in real estate prices continues to speed up, this may increase the amplitude of the credit cycle and entail elevated demand for mortgage loans and, subsequently, a more significant lending contraction.

If real estate prices continue to grow fast and this trend persists, the Bank of Russia may consider the issue of tightening the macroprudential measures in mortgage lending in order to maintain the quality of banks’ mortgage loan portfolios.

Banking sector stability and measures to support households and businesses

The banking sector has a considerable safety cushion in the form of the accumulated capital buffer of 5.8 trillion rubles,6 as well as the macroprudential capital buffer amounting to 0.6 trillion rubles which may only be released based on the relevant decision of the Bank of Russia. As the temporary easing enabling banks to postpone loss provisioning for restructured loans is gradually terminated, in 2021 Q2 the Bank of Russia will consider the issue regarding the release of the accumulated macroprudential buffer for unsecured consumer loans, given the level of potential losses on such loans.

The measures supporting households and businesses continue to be effective; therefore, it is unreasonable to change the national countercyclical buffer and risk-weight add-ons.

The Bank of Russia Board of Directors will hold its next meeting to review the national countercyclical capital buffer and risk-weight add-ons in May 2021.

1 According to Reporting Form 0409101. Adjusted for currency revaluation.
2 According to Section 3 of Reporting Form 0409115. For credit institutions operating as of the latest reporting date, including earlier reorganised banks.
3 According to Reporting Form 0409704.
4 According to Reporting Forms 0409316 and 0420863 including information on securitised mortgage loans, net of acquired claims.
5 According to Rosstat.
6 According to Reporting Form 0409135. Calculated as of 1 February 2021 as the minimum buffer to absorb losses estimated based on three ratios, taking into account the unaudited profit reclassified to common equity Tier 1 capital and the positive effect of loss on risk-weighted assets.

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