The Bank of Russia will increase risk-weight add-ons for unsecured consumer loans starting September 1, 2024. This measure aims to curb the rise in household debt and strengthen banks' macroprudential capital buffers.
The decision by the Bank of Russia's Board of Directors follows an accelerating trend in unsecured consumer loan growth, with a rate of 2.0% in May and 1.8% in April and March. The annual growth rate for outstanding loans reached 18.1% as of June 1, 2024 (20% annualized), outpacing the increase in household incomes, which rose by 14.2% in Q1 2024 compared to Q1 2023. This discrepancy is increasing households' debt burden.
Currently, borrower income assessments include significant bonuses and other one-off payments from February-March 2024, potentially leading to an underestimation of borrowers' debt service-to-income ratios (DSTI). As a result, some loans fall into lower DSTI segments not subject to macroprudential limits, allowing borrowers to take on more debt. These borrowers could face vulnerabilities if their irregular incomes decrease.
To address these risks, the Bank of Russia is raising add-ons for loans with low DSTI and low effective interest rates (EIR), excluding the lowest-risk loans. The surge in credit card lending also prompted this action; macroprudential limits apply only when credit limits are increased or new cards issued but do not restrict existing lending within approved limits.
In Q1 2024, credit card loans made up 22% of loans issued to borrowers with DSTI above 80%. Higher macroprudential add-ons aim to make such high-risk loans less attractive to banks.
These measures are expected to expedite the accumulation of the macroprudential capital buffer, which stood at 4.3% of unsecured consumer loan portfolios (₽0.6 trillion) as of June 1, 2024.
Tables detailing risk-weight add-ons for consumer loans issued from July and September provide specific figures for various DSTI and EIR categories.
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