The Bank of Russia has announced an increase in risk-weight add-ons for unsecured consumer loans and introduced new requirements for car loans, effective from July 1, 2024. This move is intended to limit individual debt burdens, strengthen the macroprudential capital buffer, and improve banks' resilience against potential losses on consumer loans.
The decision by the Bank of Russia's Board of Directors was influenced by recent trends in lending. There has been a noticeable acceleration in outstanding unsecured consumer loans, with a rise of 1.8% in March compared to previous months. The first quarter of 2024 saw a decline in cash loans but an increase in credit card balances.
Since the introduction of macroprudential limits (MPLs), there has been a shift towards improving the lending structure. Loans granted to over-indebted borrowers have decreased significantly since MPLs were implemented. However, despite these improvements, banks are raising interest rates on new loans as market rates rise and the TCC cap remains suspended until July 1, 2024.
Banks have seen an increase in higher-risk borrowers taking out loans at elevated interest rates while solvent individuals delay their borrowing decisions. As a result, banks are relaxing their lending requirements and charging higher TCC levels to cover increased risks.
Car lending is also experiencing rapid growth with relaxed bank standards contributing to this trend. A significant portion of new car loans has DSTI ratios above 50%, indicating higher risk levels within bank portfolios.
To address these issues and enhance banking sector resilience under stress conditions, the Bank of Russia is implementing risk-weight add-ons for unsecured consumer loans with TCC between 25-40% and setting similar measures for car loans with DSTI over 50%. These changes aim to build up capital buffers within banks' loan portfolios by year-end.