No money — don’t take out loan: borrowers to be checked via competent bureau

Tatarstan borrowers have increased their debt load to 27,3% by the imposition of restrictive measures of the Central Bank

No money — don’t take out loan: borrowers to be checked via competent bureau Photo: tver24.com

Tatarstan residents’ credit health index calculated on the basis of their credit score has notably gone up amid vigorous consumer lending. The borrowers’ debt load has reached the peak of 27,31%, overdue payments in consumer loans have been 17,28%, while Tatarstan itself has made it to the top 20 regions with the highest debt load (HDL). The Central Bank has recently warned about the next novelty to recover the lending process, as a result of which borrowers with HDL will have to either pay off old loans or take out new loans but at a higher interest rate. Meanwhile, banks themselves don’t reduce the number of loans granted despite the HDL. More is in Realnoe Vremya’s report.

CB creates competent sources to calculate DLI

The Central Bank continues to consecutively take measures to cool down the overheated consumer lending market, which, as the regulator thinks, led to growth in natural persons’ debt load. Director of the Financial Stability Department of the Bank of Russia Yelizaveta Danilova said about the next novelty to keep the loan boom among the citizens.

As it is known, the high debt load (HDL) has restricted lending by Russian banks and microfinance institutions (MFI) since 1 October. If a borrower’s index exceeds 50%, financial institutions are obliged to prepare additional reserves for them, which they hadn’t had to do. In the future, there will also appear new settings to control the citizens’ debt load. Danilova said that the mechanism for calculating the debt load would run, where banks and MFIs would take raw data about the borrower’s incomes from and why she trusted information from independent sources.

“Now banks and MFIs themselves determinate the number of credit story bureaus that they have to turn to to get information about the borrower’s debts,” Yelizaveta Danilova noted.

Later she added that there still were banks that calculated the HDL index themselves on the basis of data provided by borrowers, certificates of income. However, this approach doesn’t work for CB. According to Danilova, the regulator wants the lenders to be able to obtain full objective information about the borrower’s debt load from competent credit bureaus.

Yelizaveta Danilova said about the next novelty to keep the loan boom among the citizens. Photo: Igor Samokhvalov (pnp.ru)

“Now the State Duma has a bill on amendments to the law on credit stories, and whey they are adopted, then the bank or MFI will just have to turn to a competent bureau to obtain all the information about the borrower’s debt load,” she said.

We’re talking about the creation of an institution of a competent credit bureau that is to aggregate information about debt load stored in different credit bureaus. It is no secret that borrowers often take out credits in different banks, this is why at times a new lender may not be aware of them and calculate the HDL wrong. At the same time, Yelizaveta Danilova stressed that “creditors can obtain information about borrowers with their consent from automatic systems of the pension fund and the federal tax service”. The CB is working on the efficiency of the services and to enable banks to obtain information quickly.

“If the bank doesn’t have data about a borrower, it can use its own assessment, which can exceed the average income level in a region,” she indicated.

CB: if you have no money, you’re better off without credit

The Central Bank is convinced that the introduction of HDL will provide the borrowers’ financial stability.

“We consider that this indicator is important to not only banks and other credits but also the borrowers themselves,” Danilova claimed. “When knowing the level of debt load, a person will understand how difficult it will be to pay off a new credit.”

She reminded once again that the indicator of debt load reflects the share of the borrower’s income he spends to pay off credits and loans.

“Banks and MFIs have been obliged to calculate HDL when deciding to grant a new credit or increase a credit card limit since 1 October. If the HDL index is more than 50%, it means that a bank or MFI have to create a big capital for such credits, and it influences the bank’s costs, which can have an impact on individual credit terms,” she explained. In her opinion, if the HDL indicator is too high, the borrower should ‘postpone the scheduled purchase until the indicator improves”.

Over the last six months, the average debt load indicator of Russian borrowers has demonstrated slight growth — by 1,64% percentage points. Photo: vkonline.ru

Despite the restrictive measures, the decision to grant a loan is always up to the bank, Yelizaveta Danilova explained and warned that “if the HDL index is more than 50%, it means that a bank or MFI have to create a big capital for such credits, which is big costs”. As a result, for a borrower, such a credit can turn out “less profitable, and the interest rate can go up”.

Nowadays the average HDL in the country is 24,6%, which the National Credit Bureau (NCB) calculated on the basis of information from 4 million Russian creditors (banks, MFIs and consumer credit cooperatives). Over the last six months, the average debt load indicator of Russian borrowers has demonstrated slight growth — by 1,64% percentage points (pp). Debt indicator is calculated twice a year — in April and October.

Tatarstan borrowers spend a third of income to pay off credits

Curiously, the Tatarstan residents’ debt load had notably gone up by the moment of the imposition of restrictive measures compared to other regions, though it is far from the critical level of 50%. According to the National Credit Bureau, the Tatarstan residents’ average HDL totalled 27,3% as of 1 October having increased by 2,4 pp since April. This indicator is comparable with the borrowers’ income level up to 20,000 rubles (their HDL is 28,8%). In other words, residents of the republic spend a third of their incomes to pay off credits. In this indicator, Tatarstan is in the top 20 regions with the highest debt load. Residents of Amur (30,4%), Kirov (29,4%) and Orenburg Oblasts (28,6%) had a high debt load as of 1 October.

The introduction of the credit health index hasn’t influenced the number of denials to grant a loan so far, bankers assure.

“The HDL has been successfully introduced in the bank since 1 October,” Deputy Director of the Retail Products and Marketing Department at Rosbank Lidiya Kashirina told Realnoe Vremya. “Obviously, one month of the HDL’s application isn’t illustrative for full analysis and clear conclusions, at the moment we are accumulating statistics for detailed analysis of the real impact compared with the expected one. We don’t see the dynamics of denials because of HDL.”

At the same time, banks try not to offer borrowers with confirmed income a big sum of credit.

“We simultaneously develop features of our products, including by expanding the opportunities to take out a bigger sum of credit with well-documented income. Moreover, income confirmation via the Pension Fund of Russia, which is already online at Rosbank, allows receiving a decision on the application faster. We hope these measures will facilitate lending’s qualitative development,” Kashirina commented.

Not only the number of denials increased at VTB but, on the contrary, there is a growth of loans granted.

“VTB bank uses its customised procedure to assess potential borrowers complying with requirements of the Bank of Russia,” Realnoe Vremya was told in the press service of the company. “The volume of sales of VTB credit products in Russia has grown by 12,3% in the last three quarters, which is by 3,3 pp higher than the market. Over 1,1 trillion rubles of credits have been granted to the population in general. Mortgage and cash credits are the most popular.”

VTB considers that it is necessary to calculate the HDL not only for banks but also the client who “will see how he pays off his credits and evaluate if he can take out a loan or not”.

“The introduction of the HDL hasn’t influenced the number of loans granted,” says Grigory Shabashkevich, vice president, director of Credit Risks Department at Renaissance Credit. “Some decrease, which we can see, can take place because many banks, including we, tightened our credit policies earlier this year due to the worsening payment discipline in the market in general. Clients of our bank often take out loans in cash to purchase a new or second-hand car, furniture and big household appliances as for construction and repair works.”

Analysts of Otkritie bank forecast growth of unsecured consumer lending by 20% till the end of the year.

“In 2020, the annual pace will go down to 10%, but the dynamics will still be positive,” the press service of Otkritie bank noted. “This is conditioned, first of all, by the slower growth pace of the world economy. A rise in risk quotient premiums is also designed to provide the same goals. The CB with its actions is trying to prevent a bubble in the consumer lending market. In the future, it will be harder to take out a loan, as banks’ scoring systems will tighten the internal filter in a hunt for a good borrower.”

The flipside of the HDL is overdue payments. Tatarstan residents' overdue payments over 90 days totalled 13,9% (data as of 3Q 2019), Equifax credit bureau’s data prove. The highest overdue level remains in MFI loans — 34,8%. Mortgage payments are the loans paid off on time — the overdue payment is 1,17% and car loans are 5,83%. Meanwhile, consumer loans are hardly paid off — 17,9%.

Almost one in two is serial borrower

The CB is concerned about the general tendency of that two-thirds of all borrowers have an unsecured consumer loan or credit card debt. This is what Analysis of Tendencies in Lending Market for Natural Persons in 2015-2019 Based on Data of Credit Bureau review, which was published on Friday.

But the regulator is worried about the population of serial borrowers the most, they take out not only a mortgage loan or another credit but also consumer loan. It is a new occurrence.

The regulator is worried about the population of serial borrowers the most, they take out not only a mortgage loan or another credit but also consumer loan. Photo: dailystorm.ru

“If only 34% of borrowers had another credit product in combination with a consumer loan in early 2015, by 1 September 2019, such borrowers had already totalled 42%,” the CB says. Earlier, banks connived such an occurrence because it was profitable for them. But the Central Bank sees it a threat to stability.

“The rise in the amount of different types of credits a borrower has, on the other hand, increases banks’ income because of the use of cross-sell of credit products, on the other hand, it can bring to growth of the borrower’s debt loan with a risk of consecutive cross default in other credits,” the CB warns. The Bank of Russia explains the imposition of restrictions as a goal to prevent default.

By Luiza Ignatyeva
Tatarstan