Couch analytics #211. Denying a consumer loan - new rules for borrowers
A large electronics store, you can even call it huge, the shelves run off into the distance. A middle-aged man chooses a refrigerator, tells the seller that he wants to borrow it. He chooses not anyhow, he wants to buy one that is both beautiful and has worked for many years, he does not spare money. Yes, and how can you spare money if it is someone else's, buying on credit is perceived by many as a delayed waste, you pay a little monthly, you can plan payments. The main achievement of loans is that here and now you can buy goods that you otherwise could not afford. Consumer loans and installments have become a convenient tool that allows you to buy those goods that you would never otherwise be able to purchase. When used correctly, credit is a good tool, but, as often happens, many rushed into this story with their heads and could not stop. The refrigerator buyer clearly mastered the loans and successfully used them in his purchases. But this time, none of the loan brokers could offer him anything, the loan was denied. The motivation was very simple - you have too much debt, you have accumulated a large number of consumer loans. A person's hysteria is always unpleasant, but this time it was interesting to hear a set of phrases:
- you have no right to refuse me, it is my right to take money at interest;
- I don't have many loans, just a couple of smartphones, a couple of TVs, a kitchen and little things;
- I'm willing to pay more, but I need this refrigerator.
If this man had time to apply for a refrigerator in September, they would have sold it to him with pleasure, but starting from October 1, the Central Bank of the Russian Federation introduced new rules of the game. Now, in addition to the credit history for a particular person, the overall level of debt burden is also taken into account. Initially, it was assumed that the Central Bank would introduce these rules at the end of 2018, but at the request of financial institutions, its action was postponed for a year. Nothing happened that can be interpreted as a bolt from the blue, the state is actively using various tools to avoid inflating a credit bubble.
For example, the Central Bank of Russia in its report on the results of 2018 notes that the growth of loans for the population increased by 22.8% that year, which is a record over the past five years. Against this background, the number of bankruptcies of individuals and individual entrepreneurs also increased, an increase of 1.5 times. The regulator in its report notes that the main contribution to the growth of loans was made by mortgages, as well as consumer loans, which were often not secured by anything. As of December 1, 2018, the portfolio of unsecured consumer loans in Russia grew by 22.5%, amounting to 7.3 trillion rubles (this is half of all loans to individuals). The share of overdue loans in Russia fluctuates at about the same level, which is 10-12%. But the number of bankruptcies has increased, as of January 1, 2019, approximately 748 thousand people are at risk, they cannot fulfill their obligations on borrowed money. This is 1.3% of the total number of borrowers.
The problem of consumer loans lies in the plane of the state, since it means that people take loans that at some point they cannot pay. Therefore, the Central Bank of the Russian Federation created a new scheme in which, when approving a loan, the total debt burden of the borrower should be calculated.
You can find the original document about allowances and coefficients here.
From October 1, 2019, banks are required to calculate the debt load indicator (DNR) for any client that takes a consumer loan from 10 thousand rubles. For banking products, such as credit cards, this is also required, especially when changing the credit limit on the card, restructuring the loan, and the like.
If you describe PTI as something simple, then it is an indicator of what percentage of your income you give to service all your loan obligations. All your loans are taken into account - it can be a credit card, consumer loans, mortgages. For banks involved in lending, this means another nuisance, now when calculating capital adequacy, the debt burden is taken into account, that is, the risk of the bank that it will not return its money. This is natural, because otherwise the market will be inflated with unsecured loans, and when this bubble bursts, it is the state that will be forced, willy-nilly, to save the banking sector and pay for someone else's holiday. Plus, in any scenario, this will create excessive social tension. People who thoughtlessly collect loans almost never consider it their miscalculation and their mistake. As a rule, they blame the government, the president personally, and further down the list.
The introduced rules on the debt load indicator do not mean at all that a person will not be able to take out a loan. The bank may not refuse a loan, this is its right, but in this case it must have sufficient capital. For example, when calculating capital adequacy, a bank must add 70 percentage points for a loan with an IPA of 40 to 50% and a full loan value of up to 20%.
This measure forces banks to either not issue unsecured loans or increase their capital. As you understand, it is easier not to issue loans, moreover, for some financial institutions in the regions, this measure means death in the consumer lending market, they simply do not have enough capital for such operations. Is this the right measure? Definitely yes. After all, if people cannot meet their budget, then there must be rules of the game that will force them to do so. And unsecured loans for banks become literally their headache.
What happens in practice and how the market will change
I'll start with the good news. Despite the delay of a year, the market has not prepared for the introduction of the debt burden indicator, today there is no mechanism for how banks can calculate it instantly and in real time. The simplest mechanism is the standard scoring that all banks use, plus a request for information from the credit bureaus. I think that the unlucky buyer of the refrigerator did not pass the instant test of his story, it became a stumbling block for him. The second point is related to the fact that a person, most likely, has extremely low official incomes, which also affects this indicator. You can earn a lot, but if this is unofficial income, then access to such an instrument as a consumer loan will be difficult for you, if not closed, then difficult.
But gradually the checks will be tightened, income certificates and similar onerous documents will appear again, which will need to be received for submission when obtaining a loan. But there are other possibilities for banks on the surface, how to respond to this situation, for example, the following scenarios are possible:
- Increasing the loan term for the borrower, reducing PTI due to longer terms. If today we are talking about the fact that loans average about 16 months, then their term will clearly increase to three years;
- Increase in the cost of the loan - this automatically occurs when the loan term is extended, but also for borrowers with a high PTI, a higher percentage may be charged due to the 5days Soft Permanent Pink Lips risks that it poses to the bank. The situation is anecdotal, since the one who has the worst situation will bear the most costs (perhaps this is a nod to those who have unofficial incomes and can pay for them). But it is also actually pushing everyone who has not calculated their strength and cannot service their obligations to the bankruptcy procedure;
- Decreasing the number of loans issued, reducing risks for banks - reducing the share of consumer lending, which is not bad compared to the current situation in the market, where the number of unsecured loans is too high.
The introduction of PTT is an excellent measure to regulate the market, it makes people look at loans consciously, makes them more expensive for risky borrowers and at the same time increases the stability of the banking system. Along the way, killing all the weak players, giving their small shares to large banks. It can be assumed that the Central Bank of the Russian Federation acts in favor of the largest banks, but this is definitely not the case. The regulator simply insures itself against the risks associated with the consumer lending bubble and begins to gently deflate it. The measure does not look belated, it will mitigate the effects of the current crisis. But for the electronics market, this means fewer loan approvals in the spring of 2020, pushing the market down. It will be measured in a piece sales drop of 1.5-2%, but this is enough for expectations to be negative. Forewarned is forearmed.
P.S. Most recently, we discussed the expectation of a crisis and how consumer behavior changes in such times.
As an example, which has become canonical, he cited the rise in prices for buckwheat. In less than a month, buckwheat producers in Russia planned to raise the cost of groats from 6 to 50%. The spread of prices itself already shows that this is an expectation of a crisis, and not a real need to change the cost. It's nice that by reading "Couch Analytics" you stay up to date on how market mechanisms work and what's behind the events.