The Bank of Russia has announced new macroprudential limits (MPLs) for unsecured loans and microloans for the third quarter of 2024. These limits are designed to restrict lending to borrowers with high debt service-to-income (DSTI) ratios and extended loan maturities, aiming to reduce household over-indebtedness.
In its decision-making process, the Bank of Russia's Board of Directors considered several factors. Borrowers who spend more than 50% of their income on loan repayments constitute a significant portion of outstanding unsecured consumer loans. Although this percentage has decreased since MPLs were introduced in 2023, it remains high. As of April 1, 2024, borrowers with DSTI ratios exceeding 50% accounted for 56% of outstanding loans and microloans, compared to 64% at the beginning of January 2023. The bank notes that loans from these borrowers tend to become overdue more frequently, posing potential risks to banks' portfolios.
The implementation of MPLs and a rise in household income by 14% year-over-year in the first quarter of 2024 have led banks and microfinance organizations (MFOs) to reduce lending to those with DSTI ratios over 50%. The share of such loans issued by banks fell from 63% in the fourth quarter of 2022 to 34% in the first quarter of 2024. However, credit cards remain an exception; about 44% of funds are still allocated to borrowers with DSTI ratios above 50%, as MPLs affect this segment with some delay. Similarly, MFOs issue about one-third (32%) of their loans to borrowers with high DSTI ratios.
The MPL adjustments aim to shift lending towards borrowers with lower DSTI ratios who are better equipped to handle financial stress. The growth rate for outstanding unsecured consumer loans was recorded at 17.8% year-over-year as of May 1, 2024, driven by macroeconomic conditions and increased household incomes.
The Bank plans further tightening measures for MPLs on loans and microloans issued in the third quarter. Banks and MFOs will be restricted from granting or increasing credit limits if a borrower's DSTI ratio exceeds 80%.
For banks without a basic license, MPL values will adjust as follows:
- For DSTI exceeding 50% but below 80%, percentages will change from Q2's figures: consumer loans without credit limits decrease from 25% to 20%, while established credit limits remain at a constant rate.
- For DSTI exceeding 80%, both categories see reductions or remain constant at minimal levels.
- Loan maturity beyond five years sees no change.
For microfinance organizations:
- Similar adjustments apply where percentages for different categories either decrease or maintain current rates.
- There is no limit set on loan maturity exceeding five years.
This transition aims to create a balanced structure within outstanding consumer loans and microloans, reducing risks for both financial institutions and borrowers.