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CBR aims to tighten N1 requirement

Deputy Chairman of the CBR Mikhail Sukhov has announced that the regulator plans to establish elevated risk coefficients for unsecured retail loans for calculating the N1 ratio (capital adequacy) starting from February 2013. For rouble-denominated loans with interest rates below 25%, and FX-denominated loans with rates below 20%, the risk coefficient will be at 1.0x. For loans with interest rates above these levels, the coefficients will be at 1.1-2.5x (the maximum coefficient is to be applied to loans with interest rate above 60%). New measures are to be implemented for loans issued after 1 January 2013. Banks have four months to discuss the CBR initiative.

This decision might be seen as supporting a ‘no change’ decision in November, implying that the regulator could concentrate on macro prudential, rather than monetary policy, measures to cool the lending boom in Russia. It also comes in line with the CBR’s previous statements that consumer lending needs to be limited as it raises risks across the sector.

The major impact would be on consumer lending banks, including HCFB, OTP bank and Russian Standard, where unsecured lending accounts for a significant part of the loan portfolio (this might force them to downscale this business). Furthermore, diversifying loans by interest rates would also limit a bank’s opportunities to transfer the increasing cost of funding on to clients.

In 1H12, OTP bank Russia posted N1 of 18.2% which provides a cushion vs. the minimum level of 10%. However, in the longer term we see downside risks from lower loan growth in the segment that might negatively affect OTP group’s results. We do not see any material effect for Sberbank, which offers lower interest rates (it also targets lower rates in its newly established POS lending business) and where the share of unsecured loans accounts for only 14% of the total loan book. 

Mikhail Shlemov, Svetlana Aslanova
VTB Capital analyst

CBR, FX market, Russia

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