Bank Report Shows Little Change in Consumer Loan Holdings by the Central Bank for July
In the month of July, Russian banks reported a notable increase in the requirements for loans to organisations, surpassing the levels seen in June, according to preliminary data obtained by TASS from the Bank of Russia. This trend, however, was not observed in the requests made to individual customers.
The slowdown in the growth of banks' requests to organisations in June was reported by experts, with the growth rate significantly decreasing from 1.3% in May to 0.4%. This slowdown can be attributed to the low activity in the retail market and the tight monetary policy, as reported by various sources.
The increase in requirements for the population in July was close to zero, following a 0.4% increase in June. The volume of loan portfolios to physical persons in Russian banks remained almost unchanged in July.
The stricter requirements on loan portfolios for legal entities in Russian banks are driven primarily by intensified international sanctions and regulatory pressure targeting Russian financial institutions. These sanctions include bans on financial messaging services like SWIFT, restrictions on the export of banking software, and full transaction bans imposed by the US, EU, and other governments on Russian banks and entities.
The extensive sanctions against Russian banks restrict their access to global financial infrastructure, such as SWIFT and the EU's SPFS ban. Prohibitions on the export of banking software affect banks' ability to manage loans efficiently. Increased scrutiny by correspondent banks abroad leads to delays and difficulties in cross-border transactions. Pressure from US and EU regulators compels banks to tighten loan approval and monitoring criteria for legal entities to mitigate risk amid economic uncertainties and sanctions compliance requirements.
As a result, Russian legal entities face tougher lending conditions, reduced access to credit, and longer processing times. Delays in foreign currency transactions and increased scrutiny on documentation complicate operational cash flows for businesses engaged in international trade. Difficulty in opening new accounts and obtaining loans from banks, especially those with obvious Russian links, is another challenge faced by businesses.
The ban on banking-related software reduces banks’ ability to offer sophisticated loan products and manage portfolios dynamically, potentially limiting credit availability to businesses. In response, Russian banks may develop more stringent due diligence and documentation requirements for loan applicants to navigate growing legal risks.
Looking ahead, continued tightening of sanctions is likely to push Russian banks to further restrict loan portfolios for legal entities to comply with international regulations. Increased reliance on alternative financial messaging systems like SPFS, though these are themselves increasingly sanctioned and restricted, is a possible adaptation strategy. The ongoing evolution of sanctions may lead to further restrictions on financial software, transaction capabilities, and cross-border financing options, driving Russian banks to tighten lending even more fundamentally.
For ordinary Russians, this means that banks are not yet increasing the issuance of consumer and mortgage loans. As for enterprises, they are facing a slight tightening of borrowing conditions. Businesses with less visible ties to Russia currently face fewer disruptions, but the overall financing environment is more restrictive. The potential growth in local and regional financial ecosystems supporting Russian businesses with less foreign involvement due to sanctions-related disconnections is a possible future trend.
I'm not sure if there will be a significant increase in consumer loans for ordinary Russians soon, given the current tightening of borrowing conditions for enterprises and the ongoing restrictive financing environment. The stricter loan approval criteria for businesses, including those with obvious Russian links, could impact the finance sector, potentially affecting the availability of business loans amid international sanctions and increased regulatory pressure.
