Long-term cash loans are on the rise
In the face of mounting financial stress among borrowers, Russian banks are extending loan terms to mitigate the risk of rising loan defaults and improve debt servicing capacity. Anatoly Perfilyev, Director of Bank Ratings at Expert RA, believes this strategy will lead to more active support for positive dynamics in consumer lending.
The rise in consumer debt defaults, high interest rates, economic slowdown, and bank sector fragility are key factors driving this trend. Leading banks such as Sberbank and VTB are preparing for a surge in consumer loan defaults, with overdue consumer debt at a six-year high of 1.5 trillion rubles and non-performing loan (NPL) ratios increasing notably in retail lending portfolios.
The historically high key interest rate of around 18% increases borrowers' repayment burdens, encouraging banks to extend loan terms to avoid immediate defaults. Slowing domestic demand growth and increasing financial strain on individuals and corporations further reduce borrowers’ ability to repay loans on original schedules, prompting banks to restructure debt with longer terms and larger volumes.
The banking sector is under stress from rising NPLs and financial fraud schemes targeting vulnerable borrowers, which incentivizes banks to manage their loan portfolios more conservatively through term extensions and restructuring.
Retail lending rates remain significantly higher than the first half of last year by 6-7 percentage points. However, the increase in loan terms makes borrowed funds more accessible to citizens, reducing the monthly financial burden, particularly in the current high-rate and inflationary environment.
As of July 24, the FCC in the top 20 banks by retail credit portfolio volume was 31.8% annually. The average maximum FCC limit in the top 20 banks was 38.7% annually, while the average minimum was 24.8% annually. The average FCC for cash loans has decreased by nearly 2.5 percentage points since the beginning of the year.
In early June, the Bank of Russia reduced the rate by 1 p.p., to 20%, and at the next meeting on July 25, the regulator may cut it by another 1-3 p.p. This easing of monetary policy could influence the level of terms, as suggested by experts.
Mikhail Polukhin, Director of Financial Institutions Ratings at AKRA, suggests that the lengthening of loan terms may be linked to "some activation of the credit market in anticipation of further rate cuts". However, after a significant contraction in retail lending, the market indicators of this segment are volatile, so conclusions about the further dynamics of loan terms can be drawn over a longer observation period.
Some large banks are softening their risk policies to boost lending and lengthening loan terms to reduce the calculated value of the debt-to-income ratio for borrowers. As of early July, the average term for cash loans exceeded 30 months, effectively returning to mid-2024 levels.
Banks are easing their requirements for borrowers and reducing their debt burden to offset the Central Bank's stringent demands. According to marketplace "Banki.ru", the average rate for consumer loans was 28.7% annually on July 24. In the first week of July 2025, the average Full Credit Cost (FCC) for cash loans stood at 32.8% annually.
In conclusion, banks in Russia are extending loan terms mainly as a strategic measure to address the mounting risk of loan defaults due to a combination of elevated interest rates, deteriorating borrower finances, and broader economic challenges. This helps banks manage credit risk while providing borrowers more time to repay their debts, amid a fragile financial environment.
- In an effort to alleviate the rising risk of loan defaults and improve borrowers' debt servicing capacity, banks in Russia are focusing on extending loan terms and restructuring debt, particularly in the personal-finance sector.
- As economic challenges persist and borrowers face increased financial strain, business and personal-finance lenders are offering longer loan terms, with the aim of reducing monthly financial burdens and mitigating the risk of loan defaults.
