Vladimir Residents Have Accumulated a Record Number of Loans. Banks Will Tighten Their Lending Terms

The state regulator intends to stimulate financial institutions to assess risks more strictly

According to the regional branch of the Bank of Russia, the beginning of 2021 was marked by a historically high number of loans issued to citizens. The debt load indicator (the ratio of all loan payments to the total income of the population) increased to 11.7% by the beginning of the year. A similar situation is observed in the Vladimir region. For five months, the residents of the region received 149 billion rubles of credit, of which 82 – for consumer purposes, and 67 – for mortgages.

Because of the preferential conditions introduced in 2020, at the beginning of this year there was an unprecedented demand for mortgages. During the four months of 2021 issued 4,500 such loans, an increase of 45% over the same period last year. The average size of loans also increased to 2.2 million rubles, resulting in a monetary volume of housing loans jumped by as much as 72.5%.

Russian and Vladimir mortgage borrowers are characterized by good payment discipline. The volume of delinquencies in the country does not exceed 1%. This is partly due to the fact that as collateral for such loans is the real estate itself, the loss of which seems to be the worst-case scenario. The Bank of Russia notes that the Vladimir citizens do not pay consumer loans so diligently, and coupled with the “credit frenzy” it leads to additional risks for the financial system.

“In order to “cool down” the consumer credit market, the regulator will raise the risk ratios for unsecured consumer loans to the level that was in effect before the pandemic began on July 1 this year. Banks will form more reserves for such loans and tighten the conditions for granting them,” the state regulator said.

Banks will use a new indicator of debt load to assess the possibility of extending the loan. It will reflect the volume of already taken loans to the income of the citizen. This figure will be considered high if the repayment of debts takes 40 – 50% of the borrower’s income. If the income is low, then the burden of 30% may be unbearable.

Separately, the Bank of Russia asked citizens to be more balanced in planning the loan. It is worth thinking in advance what they will have to part with in the event that life circumstances and income levels do not allow to pay debts on time.

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