Page 95 - RusRPTSept23

Mortgage growth rates in July continued to thrive, maintaining their high June level at 2.5% according to preliminary data.
Mortgages backed by government support exhibited a substantial 12% increase, rising from 321bn rubles in June to 360bn rubles. This growth can be attributed to both the "Family Mortgage" (~160bn rubles compared to 150bn rubles in June) and the "Preferred Mortgage" (157bn rubles compared to 136bn rubles) programs. This inclination to invest in real estate amidst the ruble's volatile exchange rate and rising inflation expectations is evident. Notably, the timeframe for concluding transactions on the primary market (primarily under DDU arrangements) is shorter than that of the secondary market.
Conversely, the issuance of market-rate mortgages experienced a modest decline of 7%, totaling 286bn rubles compared to 307bn rubles in June. The segment of individual housing construction (IZHS) is growing in significance. Preliminary data for July indicates that it accounted for approximately 17% of all mortgages issued. Within this segment, 10% corresponds to purchases of existing homes on the secondary market, while 7% pertains to the construction of private homes, largely under preferential programs. This marks an increase from the 11% recorded in July of the previous year.
Problematic loans remain historically low at 0.6%. Nonetheless, the issuance of new mortgages carries an elevated level of risk. Consequently, starting from October 1, 2023, the Bank of Russia will raise macro-add-ons.
Consumer lending saw a growth of 2.0% (compared to 1.6% in June) driven by robust consumer activity and an increased risk appetite among banks.
To curb the risks of market overheating, the Bank of Russia tightened its macroprudential limits starting from July 1, 2023. In 2023, the share of loans to borrowers with a DTI (debt-to-income) ratio exceeding 80% should not exceed 20% of total issuance, and loans with terms exceeding five years are capped at 5%. Additionally, as of September 1, 2023, macroprudential add-ons to risk coefficients for consumer loans with high values of the PSK (loan-to-income) and DTI ratios will be raised. We believe that these measures, along with the anticipated increase in interest rates following the rise in the key rate, will lead to a certain cooling of the market. The Bank of Russia will closely monitor the situation and will implement additional restraining measures if necessary.
The proportions of problematic loans and overdue debts slightly decreased in July. However, the quality of new loan issuances remains subpar.
The dynamics of the main types of lending to the Russian banking sector in July turned out to be very good. Thus, the general trends of high rates of growth in lending in recent months have been largely preserved. At the same time, mortgages and corporate lending remain growth drivers for Russian banks.
In general, the increase in retail lending for 12 months, as of July 1, 2023, amounted to + 17.3%. For comparison, as of July 1, 2022, the increase was 12.5%, and as of March 1, 2023, it was only 8.2%. Thus, as the weak
RUSSIA Country Report September 2023 www.intellinews.com