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

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The Bank of Russia Board of Directors has decided to retain the numerical value of the national countercyclical capital buffer (CCyB) rate for the capital adequacy ratio of Russian credit institutions at zero per cent of risk-weighted assets, and to leave unchanged macroprudential add-ons to risk weights for calculating capital adequacy ratios.

In making the decision to retain the national countercyclical capital buffer rate and risk-weight add-ons, the Bank of Russia Board of Directors considered the following factors.

Banking sector stability and measures to support consumers and business

The banking sector has a considerable stability margin in the form of the capital buffer of 5.5 trillion rubles1, as well as the macroprudential capital buffer in the amount of 0.6 trillion rubles, which can only be released based on a Bank of Russia decision. Both the capital stock and banks’ profits enable the sector to support consumers and business via loan restructuring and thereby continue lending to the economy. As of 2 December 2020, the amount of restructured household and corporate loans totalled over 6.5 trillion rubles2. In order to stem impediments to lending growth related to banks having to draw on capital reserves to create provisions under restructured loans, the Bank of Russia at the start of the pandemic introduced temporary regulatory relaxations enabling banks to defer the creation of loss provisions on such loans.

Amid rising coronavirus infection rates in certain regions of the Russian Federation this autumn, anti-epidemic measures were tightened. In this context, the Bank of Russia decided to extend through 1 April 2021 its recommendation to financial organisations related to restructuring of loans to individuals and small and medium-sized entities confronted with an epidemic-induced deterioration in their financial position. Banks will be able to create these loan loss provisions through 1 July 2021.

Lending activity and credit risks

The relatively high lending growth rates in current conditions are to a large extent supported by, beyond soft monetary policy, the effect of the Bank of Russia’s regulatory easing and government lending / lender support programmes. Growth in lending activity across sectors is varied. Against the backdrop of sustainable growth rates of lending to non-financial entities, accelerated growth paces of lending to individuals are reported.

Russian companies’ debt on external liabilities, debt securities and loans from Russian banks has increased from 57% to 67% of GDP3 since the start of the year. The rise in corporates’ debt burden is more than 50% a result of revaluation of foreign currency liabilities. The major part of foreign currency liabilities are attributed to exporting companies and can be covered at the expense of their foreign currency earnings. This is why a rising debt burden carries no major implications for stability in the non-financial sector. The average monthly growth of debt under the corporate credit portfolio4 in the first 11 months of 2020 is 0.8%, which is above the respective indicator in the same period last year (0.5%) and in the same period of 2015 (0.4%) thanks to, among other things, the government lending stimulus package.

The unsecured consumer lending market is recovering following negative trends in the first months of the pandemic. Annual growth rates of outstanding loans totalled 9.1%5 as of 1 November 2020. Banks uphold their lending standards. The average debt burden of individuals under newly issued loans in Q3 made up 61%6 (59% in Q2). A slight increase was seen in the average payment-to-income ratio (PTI) of borrowers, driven by a decrease in household incomes in 2020 Q2 given that the PTI ratio calculation includes the borrower’s income for the last 12 months. Current credit growth does not carry financial stability risks inasmuch as it is accompanied by decreasing loan rates, thanks to loan refinancing, among other things, which leads to a reduction in loan repayment amounts. The effective interest rate of cash loans7 dropped from 15.0% in Q2 to 14.2% in Q3.

Loan debt saw accelerated growth rates in the mortgage sector. Outstanding loans under ruble-denominated mortgage loans grew by 22.2%8 annually as of 1 November 2020. A substantial driver of this expansion is the primary housing market. The annual growth rate of ruble-denominated mortgage loans (secured by joint participation agreements) came in at 37.2% as of 1 November 2020. Banks are upholding their requirements for borrower solvency. The average PTI ratio under mortgage loans issued in Q3 was 54% (in Q2, 57%); a rise however was seen in the proportion of new loans with a 15-20% down payment. The proportion of such loans in Q3 stood at 31.7% vs 23.9% in Q2 (in Q1, 28.8%). The rise in the share of loans with low down payment was caused by the government mortgage lending subsidy programme, among other things, which permits a minimum down payment of 15%. Moving forward, should the proportion of low down payment loans continue to increase, this could deteriorate banks’ credit portfolios.

The quality of mortgage credit portfolio is also to a great extent determined by balanced growth in property prices. In Q3, the primary market posted the annual price growth pace of 9.4%9. Sustainable acceleration in the growth of property prices, should that be the case, may magnify the amplitude of the credit cycle, increase demand for mortgage loans and subsequently lead to a more profound credit crunch.

In the event of a further deterioration of credit standards and/or persistent accelerated growth in property prices, the Bank of Russia leaves open the option of a macroprudential policy tightening related to mortgage lending, aimed at maintaining the quality of banks’ mortgage loan portfolios.

The Bank of Russia Board of Directors will hold its next CCyB rate and risk weight add-ons review meeting in March 2021.

1 According to Reporting Form 0409135. The calculated value as of 30 September 2020 is the minimum buffer to absorb losses estimated based on three capital adequacy ratios, as well as based on reclassified unaudited CET1 profits and the positive effect of loss on risk-weighted assets.

According to a Bank of Russia survey.

According to Reporting Form 0409101, Rosstat, Cbonds.

According to Reporting Form 0409101.

5 According to Section 3 of Reporting Form 0409115. For credit institutions operating as of the last reporting date, including previously restructured banks.

According to Reporting Form 0409704.

According to Reporting Form 0409126.

According to Reporting Form 0409316. Excluding rights of claim.

According to Rosstat data.

This news item was originally published by the Central Bank of the Russian Federation (CBR RU). For more information, see the Source Link.

Regulator Information

Abbreviation: CBR
Jurisdiction: Russian Federation

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