Page 66 - RusRPTAug19

8.1.4 NPLs
The share of overdue loans in June in the retail portfolio fell 10 bps m/m to 4.9%. The corporate overdue ratio remained unchanged at 7.9%.
Standard & Poor's rating agency estimated that share of bad loans in Russia as of end of 2018 amounted to 16.7% or RUB10.4 trillion ($164bn) in absolute terms.
The agency sees bad loans decreasing to 16% in 2019 and 15.5% in 2020, while noting that in the past six years the level of bad loans in the banking system has been high at 12.9%-17.5%.
Notably, S&P sees estimated reserve average coverage of bad loans of 60% as insufficient. The agency estimates that necessary extra reserves would require RUB1.6 trillion of capital and would bring the sector's capital sufficiency ratio by 2pp from 10.2% (8% minimum required).
The stickiness of bad loans is attributed to insufficient regulation, slow economic growth, currency volatility, high concentration of borrowers, and the rise of unsecured lending.
As reported by bne IntelliNews, most recently the World Bank (WB) and the Finance Ministry warned of consumer loans risks in Russia. The WB reportedly found that almost 60% of Russian's private borrowers faced problems with servicing that debt, while the ministry believes debt servicing costs impede income growth.
8.1.7 Banks specific issues
Russia’s DOM.RF has cut mortgage rates 105-110bp to 9.7% for mortgages on the primary, and 9.8% for the secondary, residential markets. The announced level matches the historically low mortgage rates in October 2018. DOM.RF held a 2.5% market share in new mortgage origination in 2018 and the decision comes on the heels of the CBR’s 25bp key rate cut on 14 June. Mortgages have recently become an important driver for the sales of developers, representing 38-64% of total volumes (they are 80% for DM peers). A lower interest rate environment increases the availability of credit financing and would be supportive for residential demand. The latter has lately risen, increasing primary deals in Moscow 47% y/y in 2018 and 23% y/y in 5m19.
66 RUSSIA Country Report August 2019 www.intellinews.com