Banks substantially boosted the proportion of loan rejections.
On a chilly Friday, October 20, RBC drops a bombshell reporting a staggering drop in cash loan approval rates to a dismal 19%. This stomach-churning low marked the worst approval rate since the start of the year.
The article goes on to mention that in comparison to September, the approval rate fell drastically from 37.13% to a still discouraging 48.5%. To rub salt in the wound, this rate is also far below the average monthly rate for 2023, which hovers around 41.4%.
Alexei Volkov, a marketing whiz at the National Bureau of Credit Histories (NBKI), sheds some light on the grim situation. According to NBKI data, the share of approved retail loan applications plummeted from 21.6% in August to 19.6% in September.
Banks, surveyed by the publication, share a common nemesis – stricter regulation by the Central Bank of Russia. One bank cheekily added that the approved loan amounts are now smaller than the requested amounts, all thanks to the Central Bank's measures to reduce the debt burden.
Experts regard this decline in approval rates as significant, yet it remains unclear if this is just a fleeting market reaction or something more permanent.
On a brighter note, the early months of 2023 saw a surge in consumer loans in Russia. From January to May, the number of consumer loans issued more than doubled compared to the same period in 2022, reaching a whopping 14.7 million.
digging deeper, we uncover several key economic factors driving the decline in loan approval rates:
- The Bank of Russia has been maintaining punishingly high interest rates, hovering around 20-21% in 2023 and creeping into 2024. These high rates drastically boost borrowing costs, decrease loan demand, and spark caution among banks.
- Russia's economy has been stagnant, growing at a snail's pace of 1.4% year-on-year as of early 2025. This financial fatigue has banks tightening lending standards, with consumer lending particularly affected by the overall economic uncertainty.
- A strong ruble and high nominal interest rates lead to whopping real interest rates, reducing profits for businesses and savings for consumers. This, in turn, stifles credit demand and boosts loan default risks.
- Loan defaults are on the rise, particularly among mortgage loans but also among consumer loans. This puts banks in a pickle, making them extra picky about approving new cash loans to steer clear of worsening their loan portfolios.
Moving forward, banks can be expected to tighten approval criteria even further, leading to lower approval rates, less consumer borrowing, and potential damage to economic activity. The potential shift toward secured lending may be another outcome, as financial institutions become warier of unsecured cash loans.
Pressure on the Bank of Russia to gradually reduce key rates is mounting, aiming to stimulate lending and consumption, although this relief is unlikely to come right away. In the meantime, consumers can brace themselves for a more challenging lending landscape with less access to affordable credit. [1][2][3]
- The sudden decline in cash loan approval rates can be linked to stricter regulations in the banking-and-insurance industry, as banks grapple with the challenges posed by increased regulation from the Central Bank of Russia.
- Experts predict that the tightening of lending standards across the finance industry could lead to lower approval rates for loans, causing a potential decrease in business growth and consumer spending, thus impacting the broader economy.
