Central Bank of Russia: there to be no general extension to loans, but it's not recommended to charge fines and penalties
The extension to loans during the non-working week has been cancelled, but the Central Bank of Russia has recommended the banks not to penalize borrowers for delinquency until the end of April
Elvira Nabiullina, the head of the Russian mega-regulator, has announced at a press conference the recommendations that the Bank of Russia gives to commercial banks in relation to servicing loans. Who will be granted loan repayment holidays and who will have to make payments according to the established schedule, who is already applying for restructuring and how much money the economy will lose due to the epidemic — read in the report of Realnoe Vremya.
The price of April self-isolation
A month of total self-isolation due to COVID-19 can cost the economy 1,5-2% of GDP, head of the Central Bank Elvira Nabiullina said on 3 April during the online press conference. “The experience of other countries shows that a month of quarantine across the country can cost the economy 1,5-2% of annual GDP, but the cumulative effect will depend on how long the restrictive measures will take," she said.
If we proceed from the indicators of Russia's GDP in 2019 at 109 trillion 361,5 billion rubles, the expected losses, according to the Central Bank, may be from 1,5 to 2,1 trillion rubles. According to the head of the Central Bank, the negative effects on the Russian economy will be concentrated in the second quarter of 2020, after which the economy will begin to recover in the second half of this year. Inflation has already accelerated as expected, although it has not exceeded the 4% threshold. “We will monitor the dynamics of price growth," the head of the regulator promised.
The Bank of Russia is not going to save borrowers but recommends not to fine them for overdue payments
Despite the virtually complete halting of businesses and production, the Bank of Russia refrained from a general extension to loans during the declared non-working days. The Central Bank of Russia has published a special release on the work of financial organizations in non-working three weeks — from 4 to 30 April 2020. In fact, this is the regulator's instruction for commercial banks.
The release states that borrowers must meet their obligations on time, even on non-working days. “The Bank proceeds from the fact that obligations under financial contracts, the term of which falls on non-working days, must be fulfilled by debtors within the period stipulated in the contract," the Central Bank recommends. On the other hand, late payments are allowed, but on an individual basis. “At the same time, the Bank of Russia also assumes that creditors, acting in good faith, will take into account the actual ability of the debtor to fulfill the corresponding obligation," it says below. Thus, banks are given freedom of choice. Time will tell how they will behave in this situation.
At the press conference, the head of the Central Bank added that the Bank of Russia recommends not to punish debtors for late payments on loans during this period. “We recommend that all financial organizations — both banks and insurers — do not apply fines and penalties, if the borrower is conscientious," she said. Thus, it is better for the borrower to discuss these delicate issues with the lender in advance.
The portfolio of loan repayment holidays is worth 560 billion rubles
The law on loan repayment holidays will come into effect in the coming days. This is a guaranteed opportunity for a citizen to get deferment on credit payments for 6 months if his or her income over the past month decreases by more than 30% compared to the average monthly income in 2019, Nabiullina reminded.
The Bank of Russia conducted a survey among 10 major banks on the results of their work for the period from March 20 to April 1 on debt restructuring of citizens and small and medium-sized businesses.
According to Nabiullina, 16,000 application from SMEs have already been received. From March 20 to April 1, out of them, 1,158 applications on debt restructuring have already been considered. Banks satisfied 95% of these applications. The head of the Central Bank explained that the percentage of satisfied applications from SMEs is still higher than those from individuals. This is due to that government measures to support businesses in the form of regulatory relaxation had appeared a week earlier.
From individuals, banks received about 27,000 applications for changing the terms of the loan agreement due to a decrease in income resulting from the spread of coronavirus infection. As of April 1, banks have managed to review more than 12,500 of them. The lion's share of them falls on consumer loans — 9,800 (only 2,100 have been satisfied); 2,700 applications have been considered from mortgage borrowers, only 500 of them have been satisfied.
This is due to that a new method for calculating the borrower's income for 2019 has not yet been released. According to the head of the Central Bank, there are administrative issues that are not always easy in the Russian Federation, but the regulator wants to make transparent mechanisms for loan restructuring programmes. In the near future, the government will issue rules for calculating the average income for the past year, so that a person can easily make a calculation on their own and use the right to receive loan repayment holidays, Nabiullina noted. Besides, the Bank of Russia has recommended the banks to organize accessible and understandable services for checking applications for loan repayment holidays.
The total volume of loans to be restructured — mainly the deferment on interest payments — can be estimated at 200 billion rubles, while applications at another 560 billion rubles are under consideration, Nabiullina said.
Central Bank: not all can be granted loan repayment holidays
Journalists asked whether it is possible to oblige banks to grant loan repayment holidays for everyone for 2 months and the Central Bank — to give short-term liquidity for this purpose.
After all, now it is problematic to determine unambiguously how difficult a person's life situation through regulatory methods. In the US, they promised to give money to everyone. The head of the Central Bank responded to this request as follows:
“We believe that we need to focus our financial resources on those who have really suffered. Both people and businesses.”
The head of the regulator promised to expand the list of industries that need operational support as the situation develops.
P.S. Banks beginning to react
After Elvira Nabiullina's press conference, the Bank of Kazan sent out a message to its clients, which reads:
"... in accordance with the explanations received from the Bank of Russia, repayments on loans to individuals and legal entities are to be made within the standard terms stipulated by your payment schedule under the loan agreement. In this regard, we notify you of the need to deposit cash to your account in the Bank of Kazan in time to repay the loan within the terms set in the agreement...”
At the end of the message, the bank wishes health to its customers and their loved ones.