The Bank of Russia considers it necessary to extend the limitation of the maximum amount of the total cost of a loan (CCC) to all types of loans, said the chairman of the Central Bank Elvira Nabiullina during her speech at the Federation Council. The session was broadcast on the Youtube channel of the upper house of parliament.
“In order for people to see the fair cost of a loan with all the options rolled up, the requirement to limit the full cost of a mortgage loan will come into force from the middle of next year. But we consider it important to extend this mechanism to all loans. This requires changes to the legislation, and we ask for your support here, ”she said, addressing the senators.
On July 2 of this year, Russian President Vladimir Putin signed a law according to which the CPC on mortgages at the time of the conclusion of the agreement cannot exceed the lower of the two values - 365% per annum or the average market value of the CPC calculated by the Central Bank – by more than a third. Previously, this provision was applicable only to consumer loans. In addition, banks were obliged to include the cost of insurance in the calculation of the CPM on the mortgage. Unsecured loans are not currently subject to this rule.
Nabiullina noted that at the moment, according to the law, banks and microfinance organizations (MFIs) must disclose to the borrower the amount of the PSK, so that he does not find himself in a situation where he was expecting the same conditions, and in the end he had to pay more. However, credit organizations have already “adjusted” to the current measures and “some of the services are carried out bypassing” the PUK, so “the law needs to be strengthened,” said the head of the Central Bank.
The regulator wants to tighten consumer lending in Russia amid high growth rates of issuance. Thus, over the course of three summer months, the number of unsecured loans provided to the population has renewed historical records. Nabiullina has repeatedly said that such a situation carries risks of the population’s debt load and leads to a situation where people will not be able to service their debts.
According to the head of the Central Bank, the share of consumer loans for more than five years increased from 11%, which was before the coronavirus pandemic, to 21% in the second quarter of 2021. As a result, the size of monthly loan payments decreases, but the total amount of debt increases.
“It is normal when a mortgage is issued for a long term: the rates are much lower there, but for unsecured loans, these long terms are unreasonable and, of course, can lead to problems,” Nabiullina said.
She also pointed to the deterioration of consumer lending standards in Russia. According to her, the share of borrowers sending more than 80% of their income to pay off debt on loans increased from 23% before the start of the pandemic to 30% in the second quarter of this year.
In 2021, the Central Bank raised macroprudential premiums on unsecured consumer loans to banks twice – from July 1 and October 1. The essence of such measures is that they do not prohibit the issuance of loans to borrowers, including those with a high debt burden, but they increase the cost of loans for banks, forcing them to create large reserves for loans and thereby making them less profitable. However, as Nabiullina noted, this leads to the fact that smaller credit organizations refuse loans to borrowed citizens and people move to larger players who have a large capital supply.
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