The return of low interest rates: why are falling interest on loans

“A comprehensive solution”

From 16 may, the savings Bank reduces rates on consumer loans by 1.1–4.1%, announced the Director of Department of retail non-transactional products Sberbank Natalia alymova during a conference call Monday. Now the betting range on secured loans is 14.9 22.9 per cent (previously 16,5–25,5%), loans without collateral — 15,9–23,9% (up to 17.5–26.5 per cent), says the official message of the Bank.

The overall economy is ready to lower interest rates, it is told in the message of Sberbank. “Moreover, the decline in interest rates in the economy and financial markets is already underway even with unchanged key rate of the Central Bank. Sberbank responds to this trend with a comprehensive solution, lowering rates not only on deposits but also loans,” — said in an official statement.

The last time the savings Bank considerably reduced the rates on consumer loans in June 2015. Then he corrected rates after a sharp rise in December 2014. In the fall of 2014, the range of interest rates on credits with provision ranged from 16.5 to 24.5 per cent, and on loans without collateral — from 17 to 25.5%, said the representative of the press service of Sberbank Anastasia Varlamova.

The reduction of interest rates both on loans and on deposits is a common trend that has more to do with the transition to the surplus liquidity in the banking sector, says Fitch analyst Alexander Danilov. C inflation is also due, he said, but indirectly. “With the decline in inflation expectations people have more propensity to save, and banks can afford to lower Deposit rates without losing depositors,” — said Danilov. Given the decline in interest rates on deposits, the Bank can afford to lower interest rates on loans and thus to maintain margins, he adds. According to the expert, the rates will also reduce and other banks, but probably to a lesser extent.

Analyst NRA Karina Artemieva adds that another factor for this decision of Sberbank — is the expectation of lowering the key rate. “Until it happened, but the statements of the monetary authorities are inclined to believe that sooner or later it will happen,” she says.

In Sberbank have noted the increasing interest in consumer lending compared to last year. “Sberbank for the first quarter of 2016 issued consumer credits for the amount of 156 billion rubles, which is three times more than last year (52 billion rubles)”, — these data are presented in the press release. According to Danilova, a surge in lending that may arise on the background of lower interest rates, especially in the consumer segment represents a threat, as it can accelerate inflation, which in turn could lead to another round of hikes. “So it’s very important to strike a balance so that did not happen”, — adds the analyst.

Not only Sberbank

Sberbank is not the only Bank reducing or planning to reduce interest rates on loans. Five of the 15 interviewed banks — Gazprombank, “XMB Discovery”, Moscow credit Bank, alpha Bank and Binbank — are also preparing to cut rates. Moscow credit Bank will cut rates by 1-3 percentage points since may 23. “Minimum interest rate on consumer credit to our payroll clients will be 16%”, — said the press service of the ICD.

Gazprombank is planning to cut rates on consumer loans by 0.5 percentage points, and reduce mortgage rates for some categories of borrowers, said the press service of the GPB.

The Bank is considering lowering interest rates on consumer loans during the second quarter of 2016, but will look at market conditions, said the Bank. In “XMB Opening” are also preparing to cut rates, but to inform details has refused. Alfa-Bank said that the credit organization is planning in the near future decrease in rates considering market analysis.

Some banks have reduced interest rates on loans in April. So, the PSB reduced rates on all consumer loan products on average by 2 percentage points, said in response to the press-service on request. The Bank has also reduced rates on some products, and some the contrary increased.

VTB24 and retail division of VTB Bank (ex Bank of Moscow) are willing to reduce rates for the population only if the Bank of Russia reduces the key rate. This was said during a conference call Deputy President — Chairman of Board VTB Herbert Moos.

In Rosselkhozbank, UniCredit Bank and Raiffeisenbank did not respond to a request.

Senior banking sector analyst “Aton” Michael Ganelin says that the decision was influenced by the banks as excess liquidity and positive expectations on inflation and the overall gradual improvement in the economic situation. Now banks need to boost lending, which is now declining, he said.

The growth of ruble liquidity in the banking sector is directly linked to the Federal budget deficit, which the Finance Ministry is financed from the Reserve Fund. “In 2015-2016, the Treasury and the Federal subjects of the Russian Federation have become much more active place funds on deposits, which is one of the sources of inflow of liquidity at the beginning of the calendar year”, — stated in the materials prepared by the Association of regional banks “Russia”. As explained by an analyst at Raiffeisenbank Denis Poryvai, the money supply is in the banking sector. But last year the money did not lead to the emergence of surplus liquidity, because banks used them to repay debts to the Central Bank, says the analyst.

To reduce rates — not to give

However, reducing rates on loans, it is unlikely banks will approve much more loans, says S&P analyst Anastasia turdyeva. In the last two years experienced a decline in consumer lending in an unstable macroeconomic situation, the banks reduced appetite for risk, and borrowers become less active, said Turdieva. “In a situation where real incomes are not growing, significant credit growth only because of the reduction in rates should be expected,” concluded she.

Banks at the same time seeing an increase in demand for loans. So, in VTB 24 in the first quarter of 2016 sales of cash loans increased seven times in comparison with the first quarter of 2015. In Gazprombank in 2016, the demand for loans has increased twice compared to the same period last year. This is a common trend for the segment of consumer credit: according to the National Bureau of credit histories, in the first quarter of this year, the number of credits granted to population grew by 40% compared to the same period last year. At the same time, in comparison with the previous quarter, the lending in the first quarter of 2016 decreased by 24.7%.