Russian banks rejected more than six in every 10 loan applications made last year, new data has shown.
Only 36.9% of requested loans were granted in in Russia last year, down from 41% the year before, the National Bureau of Credit History said.
The approval rate for payday and short-term loans — or unsecured credit — was even lower at just 33.9%, while banks granted two-thirds of safer mortgage applications, RBC reported.
The rate is still higher than the record low of 2016, when, following a deep recession and sharp devaluation of the ruble, only 10% of loan applications were approved.
In a bid to quell fears of an emerging consumer credit bubble, the Central Bank made it more expensive for banks to lend to riskier customers last year by forcing them to hold more cash on their balance sheets. It also limited the daily rate of interest which can be charged on short-term loans.
A report from ratings agency Fitch showed Russian banks had been overestimating the creditworthiness of their borrowers before the new regulations came into force in October 2019.
The safe the borrower, the lower the chance of a default, and the lender is thus required to keep less capital on its balance sheet. However, the Central Bank employs a much stricter set of criteria for determining how solvent a borrower is than the banks’ own internal models, leading to a mismatch between the quality of the banks’ loan portfolios, the Moscow Times reported.
The professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, speaking to Vestnik Kavkaza, noted that the reason why so many loans are denied is related both to the policy of the Bank of Russia and to financial difficulties of the Russians.
"The Central Bank seeks to limit the credit growth, since that would help to maintain and later lower the level of the citizens' debt load. And indeed, thanks to this policy, there was a decline in consumer loan growth last year," the economist said.
The second reason is the too low incomes of the Russians. "A quarter of the population who receive loans then spend about 80% of their income to pay interest on loans. These are extremely high figures," the expert concluded.
Head of the State Duma’s Committee for Financial Markets Anatoly Aksakov, in turn, noted that a decline in the number of approved loan applications is an objective process. "The banks have begun to take a tougher approach to borrowers. Bank debt is growing, and banks are trying to reduce the default risk. They take into account that the population has become less solvent, as its incomes have not grown in previous years, including 2019," the MP said.
He also added that the Bank of Russia's demands on unsecured credits have grown. "As for the mortgage, the main thing there is the exhaustion of that part of the population having the opportunity to pay an initial contribution of 20% according to the requirements of the Bank of Russia," Aksakov concluded.
