Russian Financial Sector Update

Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation 23 FINANCIAL STABILITY Macroprudential policy aimed at Identifying and preventing potential systemic risks Credit activity As the pace of recovery remains inconsistent across lending segments in Russia, credit-to-GDP gap for both corporate and retail lending (a difference between the actual credit-to-GDP ratio adjusted to currency revaluation, and the long-run trend) is still estimated as negative. This shows that lending remains below the long-term trend. Retail lending risks The CBR recent measures to limit the systemic risks of non-collateralised consumer lending and support high standards in mortgage lending have yet to make impact on banks' lending activity. Non-collateralised consumer loans grow at a high pace (15.7% YoY as of June 1, 2018). Reduced interest rates in cash loans can boost overall segment growth even further. The CBR increased risk weight for consumer credits bearing an FCC of 15-25% to be issued after 1 May 2018; the efficiency of this measure will be assessed upon the results of the Q2/18. Mortgage loans grow at a steady rate, however, borrowers' debt burden remaining at the same level show that the current growth does not present any significant risk to the financial stability. The Bank of Russia aims to prevent the build-up of risks related to loans with a high loan-to-value ratio and secure sustainable development of the mortgage lending segment. Capital adequacy The capital adequacy ratio (Basel III N1.0 ratio) for the banking sector overall decreased over 12 months from 13.3% to 12.8% as of June 1, 2018. Decision The Bank of Russia keeps the countercyclical capital buffer rate for Russian credit institutions at 0% of risk-weighted assets as of July 4, 2018. Rising risk weights for specific credit requirements results in banks increasing their capital reserves to cover potential losses. Therefore considering the uneven recovery of lending, there is no need for a positive countercyclical buffer for credit institutions yet.

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