Central Bank of Russia tightens restrictions on lending to highly indebted borrowers in Q1

MOSCOW. Nov 24 (Interfax) - The Central Bank of Russia has set new macro-prudential limits (MPL) on unsecured loans and borrowing for the first quarter of 2024 and tightened restrictions consumer and credit card lending to clients with debt service-to-income ratios of 50% to 80%, the regulator said in a statement.

According to the Central Bank, the limits made it possible to reduce the share of new loans to highly indebted borrowers. For banks, the share of newly issued loans to borrowers with a DSTI ratio of more than 80% decreased from 36% in Q4 2022 before the MPL took effect to 25% in Q3 2023, and from 41% to 25% for loans issued by microfinance organizations. Over the same period, the share of loans to customers with DSTI ratio of 50% to 80% increased from 27% to 33% for banks or from 17% to 20% for loans issued by microfinance organizations. Therefore the Central Bank set MPL for loans to borrowers with DSTI ratio of 50% to 80% in Q4 2023 also.

It said debt growth varied considerably across the sector: the highest growth rates are for banks that specialize in credit cards, since there is a time lag for MPLs on this product. In this segment, a significant 82% of funds is provided through cards opened for borrowers even before MPL go into effect.

The Central Bank therefore considers it would make sense to speed up the transition to a more balanced credit card lending structure and is tightening MPL for such loans in Q1 2024. The limit is also tightened for other loans, but to a lesser extent.

The MPL for consumer loans to customers with DSTI ratio of 50% to 80% will be 25% in Q1 2024 compared with 30% at present, and for credit cards it will be 10% compared with 20%. Limits for microfinance organizations will also be reduced, to 25% from 30%.

The share of debt on loans to customers with a DSTI ratio of more than 80% in the portfolio of banks has decreased from 34% to 31% since the MPL were introduced, but remains high. Given the tightening of MPL for the first quarter, it is expected that this share will decrease to 20% by the end of 2024. Tightening the MPL will accelerate the transition to a balanced structure of debt on consumer loans, which will ultimately lower the risks of citizens, banks and microfinance organizations, the Central Bank said.

The Central Bank will make its decision on setting MPL for Q2 2024 in February 2024, taking changes in households' debt burden and lending standards into consideration.