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. Last Updated: 07/27/2016

Banks Easing Terms for Consumer Loans

In a sign that the financial crunch might finally be easing, two of the nation’s largest lenders have relaxed terms for consumer loans and rival banks are following suit.

State-controlled Sberbank and VTB-24 have cut interest rates and down payment requirements as billions of dollars in government cash flood the banking system. Prime Minister Vladimir Putin had ordered the cash infusion to encourage borrowing, and he recently prodded banks to extend the money.

Consumer loans took off a few years before the crisis as banks offered money to buy everything from cheap cell phones to flat-screen TVs. The loans essentially filled a niche usually covered in the West by credit cards — and offered interest rates to match.

Sberbank, the country’s largest bank, has reduced down payments for consumer loans to 15 percent to 20 percent, from 30 percent, and increased the cap on the amount of money that individuals can borrow, Natalya Karasyova, director of Sberbank’s retail loan board, announced last week.

The moves came after Sberbank lowered interest rates on retail loans by 0.5 percent to 1 percent in July and resumed foreign currency loans in August.

VTB-24, the retail arm of VTB, the country’s second-largest bank, said it has reduced interest rates by 1 percent on ruble-denominated mortgages and by 1.5 percent on foreign currency mortgages from Oct. 7. The fixed interest rate for mortgages is now 14.1 percent for ruble loans and 9.6 percent for other currencies, the bank said in a statement.

Russian Standard, one of the pioneers in the Russian consumer loan market, has had a harder time competing with its state-controlled peers since last fall’s credit crunch. The bank told analysts this week that it would not publish first half results to international financial reporting standards, which it said would help cut costs.

“Saving isn’t big, but the profits are close to zero,” Commerzbank wrote in a research note, citing a source at Russian Standard. The bank is still maintaining its “anti-crisis strategy” of freezing car and consumer loans, as debts overdue for more than 90 days reached 3.2 percent to 5.5 percent of the bank’s portfolio.

Calls and e-mails to Russian Standard went unanswered, and other banks contacted for this report were reluctant to disclose their full lending policies.

Most commercial banks said, however, that they were closely monitoring the developments at Sberbank and VTB-24 and were jumping on the bandwagon.

“Our bank also has begun decreasing interest rates,” said Andrei Stepanenko, a board member at Raiffeisenbank.

He said the lender cut interest rates on ruble-denominated loans to 22.9 percent, a decrease of 3 percentage points, from Sept. 25. Raiffeisenbank had offered the loans at 17 percent when the crisis enveloped Russia in October 2008.

This month, the bank cut interest rates for ruble-denominated car loans by 4.5 percentage points, offering them at 18 percent to 23 percent, compared with 11 percent to 15 percent in October 2008, Stepanenko said.

The crisis has forced many banks to be more cautious in evaluating the solvency of their clients, a trend that continues.

Yury Andresov, a board member at Home Credit Bank, said the lender recently eased loan terms for “our steady and conscientious clients.”

“We lowered interest rates and increased the amount of the loans,” Andresov said in e-mailed comments, without providing figures.

Since the start of the year, Home Credit has capped the size of the loans that it offers and expanded the list of documents that clients are required to produce to prove their solvency. “We focused our efforts on toughening underwriting procedures, fraud prevention and processing overdue loans, which helped us to maintain the steady quality of our [loan] portfolio,” Andresov said.

The bank’s portfolio is now worth 71 billion rubles ($2.4 billion), compared with 76 billion rubles last year, he said.

Andresov touted the bank’s credit portfolio as well-diversified, saying 37 percent of it consisted of consumer loans, 30 percent was credit cards, 18 percent was cash loans and 15 percent was mortgages and car loans.

The bank reported a first-half profit of 920 million rubles, down from 1.29 billion rubles in the same period last year.

Promsvyazbank said it was planning to liberalize the terms for consumer loans within weeks and was considering branching out into mortgages and car loans.

“Sberbank has softened conditions on secured loans for car loans and mortgages, but we currently don’t offer these loans,” Yelena Makhota, a vice president of Promsvyazbank, said in e-mailed comments.

The lender will make a decision on whether to start offering mortgages and car loans next year, she said.

Promsvyazbank began easing its terms on consumer loans earlier this year and now lends up to 300,000 rubles without collateral, Makhota said. The bank currently offers three-year loans of 15,000 rubles to 600,000 rubles at interest rates of 24 percent to 25 percent.

Promsvyazbank hiked interest rates by 2 percentage points in fall 2008 and reduced the maximum amount for a consumer loan to 600,000 rubles, from the previous 1.5 million rubles. The bank also introduced restrictions on who could borrow. “We offered loans only to ‘tested’ clients, those who had already borrowed money from the bank and had a positive credit score,” Makhota said.

Banks might be growing more optimistic about lending, but the interest rate cuts are small and suggest that lenders remain worried about risk, analysts said.

“Many banks have been lowering interest rates recently, but the risks remain,” said Leonid Slipchenko, a banking analyst at UralSib. “It looks like a 1 to 2 percentage-point cut is quite realistic, but not more because banks are still being cautious.”

Slipchenko predicted that lending would slowly increase but that there would be no credit boom any time soon. “The recovery of the retail credit market will be gradual and will gather pace by year-end or in the first quarter of 2010,” he said.