Reserve requirements for consumer lending to be hiked
September 26, 2012
News: Yesterday, First Deputy Chairman of the CBR Alexey Simanovsky said at a Fitch conference that the regulator planned to increase the reserve requirements for unsecured loans. The reserve requirements for loans that are not overdue and that are overdue for less than 30 days are to be doubled to 2% and 6%, from 1% and 3%, respectively. Reserve requirements for loans that are more than one year overdue are to be increased from 75% to 100%. The timing for the hike is several months.
Our View: The CBRŐs move is aimed at rapidly growing consumer banks. At the end of 1H12, the YoY growth in retail lending was over 40% in Russia. For some banks (TCS Bank, Svyaznoy) the increase was close to, or even beyond, 100%. ?Generally, the new reserve requirement for loans overdue for more than one year will not apply to consumer banks, as such loans are usually written off and/or sold to collectors. But the necessity to create additional provisions on performing loans and loans overdue for less than 30 days will have a strong impact, especially on those banks with the most dynamic loan portfolios. At the same time, we believe consumer lending growth would in any case have slowed noticeably from the beginning of 2013, even without the CBRŐs intervention.?
From the credit point of view, the CBRŐs actions are neutral to positive for consumer banks. The higher reserves will create an additional cushion against credit losses in the case of an economic downturn and limit the ability of consumer banks to distribute high dividends to their shareholders, while slower growth would make banks pay more attention to the credit quality of the loan portfolios, which can often be disguised by rapidly growing balance sheets. ?In the consumer lending space, we like the Eurobond issues of Bank Renaissance Capital (RCCF 13, YTM 8.88%, 834bp over swaps) and Russian Standard Bank (RUSB 17, YTP 8.42%, 800bp over swaps). Among RUB bonds, we see the issues of OTP (yields 8.34-10.91%, 232-443 bp over swaps) as the most undervalued.