Loans Market in Russia: Is Revival Expected?

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CEIC Russia Data Talk - October 12, 2015 Tightened economic conditions and a heightened risk environment prompt a closer look into Russia’s financial sector health. The bank lending conditions index is compiled through one of the surveys conducted by the Central Bank of the Russian Federation where loans to various classes of borrowers, including large corporations, small and medium businesses, and households are evaluated. The survey is conducted quarterly among 60 Russian banks, covering more than 80% of the entire banking credit portfolio in Russia. The survey is similar to the Bank Lending Survey (BLS) conducted by the European Central Bank in evaluating the various borrowers’ access to credit. The survey also evaluates various factors that may lead to changing lending conditions, including liquidity, Bank of Russia’s operations, competition, and asset and liability management policies of financial institutions, among others. The bank lending condition indicators are diffusion indices and may range from -100 percentage points (where all banks surveyed lean towards easing lending conditions) to +100 percentage points (where tightening lending conditions are preferred). Credit eased considerably during Q2 2015, with loosening conditions observed across the board from large corporations, and small and medium businesses, to households. Large corporations, in particular, saw the index declining to -28.89 points during the period, sharply easing from its peak value of 70.85 points observed during Q4 2014. The decline during Q2 2015 followed the previous quarter’s trend where loan conditions were similarly loosened (albeit remaining net positive). Similar trends were observed for small and medium businesses, and households. Previously, lending conditions tightened significantly from late-2013 to early 2014 as capital controls, limited external funding and the sharp depreciation of the rouble reduced the bank’s liquidity and shifted the lion’s share of the banks’ funds into the purchase of foreign currency instead of loans disbursement. This was exacerbated by the drastic increase in the Central Bank key rate from 9.5% to 17% per annum in December 2014. Indeed, higher interest rates were cited as one of the most important factors causing the tightening of lending conditions. Its associated index rose sharply during Q1 to Q4 2014 for all borrowing sectors. The gradual stabilisation of the Russian financial sector and of the exchange rate during Q1 2015 allowed some reversal of these loan tightening measures, especially with regards to the borrowers’ ability to repay loans previously granted. The gradual reduction of the Central Bank key rate from January to June 2015, along with the lowering of other interest rates for Central Bank loans using securities as collateral reduced commercial banks’ funding costs and led to easier lending conditions in Q2 2015. As a result, the Central Bank operations and domestic funding impact indicators eased by 22.2 and 17.6 percentage points respectively compared to the previous quarter for corporate lending conditions. Competition for creditworthy borrowers likewise declined as more borrowers enjoyed stronger financial positions – the associated “competition” index for households fell to -20.5 points in Q2 2015 from -9.34 points during the previous quarter. Banking forecasts for Q2 2015 suggest that loans availability will be increased for all borrowers in the second half of 2015 in line with expectations of overall economic stabilisation. Respondents also anticipate further decline of the Central Bank key rate as well as the secured loans interest rate. This optimism was supported by prior improvements in lending conditions and new loans demand during Q2 2015 which exceeded banks’ expectations during the Q1 2015 survey. That, along with the decline in interest rates from March to July 2015 on medium-term loans (for one to three years) from 28.7% to 22% per annum for households and from 17.2% to 15.4% per annum for corporations will likely revive the loans market and by implication also support the economy. By Evgeny Shlyakov - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog

12th October 2015 Loans Market in Russia: Is Revival Expected?

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