Tightening Macroprudential Limits: 2024 Russian Loan Policy Update

The Central Bank of the Russian Federation Tightens Loan Rules for Borrowers with High Debt in Early 2024

In the first quarter of 2024, the Central Bank of the Russian Federation implemented tighter restrictions on banks and microfinance organizations when they issue loans to borrowers carrying a high debt burden. This move, announced by the regulator, aims to curb risky lending and strengthen the resilience of the financial system. The focus is on addressing the behavior of borrowers who already carry a substantial portion of their income in debt obligations. It represents another step in a broader macroprudential policy framework designed to keep credit risks within manageable bounds while supporting the stability of credit institutions in the country. Citation: Central Bank of Russia.

The policy is described as a tightening of macroprudential limits for both banks and microfinance institutions. Macroprudential limits specify the maximum share of unsecured consumer loans that can be included in a lender’s total consumer loan portfolio within a reporting quarter. For January through March 2024, the Central Bank set specific thresholds to govern how much of a bank’s or microfinance organization’s loan book may come from borrowers with elevated debt levels. This framework helps regulators monitor risk concentration and ensure that lenders do not rely excessively on high-risk credit in pursuit of growth. Citation: Central Bank of Russia.

Understanding macroprudential limits is essential for grasping the policy’s intent. These limits are designed to keep the overall risk profile of the lending sector in check by capping the proportion of high-debt loans in portfolios. When a lender nears or surpasses these limits, it signals increased credit risk and potential impacts on profitability. Banks and microfinance organizations must manage their loan origination practices to stay within the approved shares. This approach also encourages prudent underwriting and diversification of loan mixes across different borrower segments. Citation: Central Bank of Russia.

For January–March of the following year, the regulator specified that the share of loans to borrowers with a debt burden ranging from 50% to 80% of monthly income should not exceed 25%, down from 30% in the prior quarter. This adjustment targets a group of borrowers who dedicate half to nearly all of their monthly income to debt service. The tighter cap is intended to reduce the exposure of lenders to households whose cash flow is highly constrained, thereby improving the resilience of both banks and microfinance organizations. Citation: Central Bank of Russia.

Meanwhile, the regulator kept the share of bank loans to debtors with a burden of 80% or more at 5% and maintained the 15% cap for microfinance institution loans to borrowers in this category. The policy also preserved the 5% limit on bank loans with maturities longer than five years, while there remains no cap on long-term loans from microfinance institutions for such durations. These calibrated limits reflect a nuanced approach, balancing the need to curb risky lending with the demand for credit, particularly in segments where longer repayment horizons are common. Citation: Central Bank of Russia.

Since the introduction of macroprudential limits, there has been a noticeable shift in lending patterns. The regulator noted that the share of bank loans to borrowers with a debt burden above 80% declined from 34% to 31%, signaling a moderation in high-risk lending. The central bank expects this share to fall further, potentially reaching around 20% by the end of 2024 as the tightened framework takes fuller effect. This outlook underscores the bank’s commitment to gradual risk reduction while allowing time for lenders to adjust their credit strategies. Citation: Central Bank of Russia.

Previously, the regulator had expressed concerns about the quality of new bank loans, highlighting the ongoing evaluation of lending standards and risk controls. The policy stance reflects a broader emphasis on financial stability, prudent underwriting, and the need to shield borrowers from becoming overextended. The emphasis on macroprudential measures indicates a preference for proactive risk management rather than reactive responses to credit challenges. Citation: Central Bank of Russia.

The changes come as part of a continuing effort to align credit growth with the overall stability of the financial system. Banks and microfinance institutions are expected to adjust their origination practices, risk assessments, and portfolio compositions to comply with the updated limits. For borrowers, the tightening signals a more selective lending environment, with lenders scrutinizing income stability, debt service capacity, and repayment prospects more closely. The overarching objective is to sustain affordable access to credit while minimizing the risk of default-induced distress for households and institutions alike. Citation: Central Bank of Russia.