Russia's Central Bank cracking down on costly consumer loans
SOCHI, September 6 (RIA Novosti) – Russia’s Central Bank said Thursday that it was cracking down on costly consumer loans, including with a measure obligating banks that lend out money at 60 percent interest to back such loans by 600 percent with their own money.
The Central Bank hopes to curb increasing amounts of expensive unsecured consumer loans from the current 40 percent annual growth rate to between 10 and 15 percent by the year 2016, deputy head Mikhail Sukhov said Thursday.
If a bank wants to issue a loan with an annual percentage rate (APR) of 45 to 60 percent, it will have to set aside a reserve fund of 300 percent of that loan’s principal, Sukhov said at a banking forum in Sochi, adding that the previous reserve requirement was 170 percent.
The Central Bank already in July hiked reserve requirements for banks that hand out consumer loans with an APR above 25 percent, Sukhov said. No increased requirements are in the cards for loans with APRs not exceeding 25 percent, he added.
Recent media reports have exposed a risk that Russia’s ongoing consumer lending boom could result in mass default because of borrowers’ fiscal irresponsibility. Personal debt in Russia stands at five average monthly salaries – or 113,000 rubles ($3,400) – per adult able-bodied citizen, online magazine Snob.ru reported Thursday, citing official data.
The share of non-performing loans in Russian banks’ portfolios stood at 6.3 percent in the first half of this year, exceeding for the first time the combined reserves (6.1 percent) set aside to make up for possible losses from such loans, the Central Bank said Thursday, Vedomosti reported.