The Central Bank of the Russian Federation May be Authorized to Restrict the Granting of Risky Mortgage Loans

On 24 January 2024, the State Duma Committee for the Financial Market proposed to adopt for consideration Draft law № 531412-8 “On Amending Article 45-6 of the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)"” (hereinafter - the “Draft law”).

The authors of the Draft law were a group of senators and deputies led by Anatoly Aksakov, Chairman of the State Duma Committee on the Financial Market.

The Draft law proposes to authorize the Bank of Russia to limit the share of loans secured by a pledge of buildings, structures, land plots, construction in progress, residential and non-residential premises and parts of buildings or structures (parking spaces) intended to accommodate vehicles.

Earlier, in 20211, as a measure aimed at reducing threats to the financial stability of the Russian Federation, the Bank of Russia was granted the right, based on a decision of the Board of Directors, to establish for credit organizations and microfinance organizations the maximum permissible share of certain types of loans (credits) granted to individuals (hereinafter – “Macroprudential limits”). At present, Macroprudential limits do not apply to loans (credits) granted for entrepreneurial purposes, mortgage loans, as well as loans whose obligations are secured by a pledge of a motor vehicle2.

Based on the explanatory note to the Draft law, the purpose of including mortgage loans (credits) within the scope of Macroprudential limits is to reduce the number of citizens' loans and prevent credit institutions and MFIs from accumulating risks by limiting the possibility of providing risky mortgage loans (credits).

The author of the Draft law, Anatoly Aksakov, also explained, “The use of macroprudential limits by the regulator has shown its effectiveness in the consumer credit market, where it was possible to significantly reduce the share of risky loans. Recently, the share of mortgages issued to borrowers with a high debt load has been growing. It is necessary to authorize the regulator to protect the interests of citizens and ensure stable development of the financial market”3.

Thus, if the State Duma adopts the Draft law, the Bank of Russia will have more opportunities to flexibly regulate the mortgage lending market by setting and subsequently changing Macroprudential limits.

The proposed deadline for preparing the Draft law for consideration by the State Duma in the first reading is February 2024.

1 Based on Federal Law № 398-FZ dated 06.12.2021 “On Amendments to the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)"” and Articles 9 and 14 of the Federal Law “On Microfinance Activities and Microfinance Organisations”.
2 According to part 6 of Article 45.6 of the Federal Law “On the Central Bank of the Russian Federation (Bank of Russia)”.