Elvira Nabiullina’s speech at the Association of Russian Banks

Good morning, dear colleagues

It is my pleasure to welcome you to our regular meeting. As is customary, I will begin with a brief review of last year’s outcomes and our forecasts, before moving on to discuss the key challenges that lie ahead.

While the banking sector did well last year, it was not without its difficulties. First, the year was marked with a rise in inflation and borrower competition for bank loans. Both banks and borrowers had to adapt to increasing interest rates.

Second, sanctions were extended to nearly all banks and the Moscow Exchange, impacting the foreign exchange market and contributing to exchange rate volatility throughout the year. This also exacerbated cross-border payment issues.

Despite these challenges, the banking sector remains steady and profitable. Our updated forecast suggests that sector profits are set to be lower than last year but still comparable at 3–3.5 trillion rubles. This will enable banks to bolster their capital, and thereby sustain lending to the economy. We anticipate credit to the economy to grow 6–11% this year.

In our view, there are three areas banks should focus on:

– capital growth;

– anticipating credit risks, which involves improving loan quality and lowering excessive credit concentration;

– addressing emerging bad debt and close borrower screening.

I will elaborate on these points.

Last year’s imbalances were primarily caused by continued credit overheating. Retail lending saw that overheating subside by mid-year as interest rates went up, subsidised mortgages were scaled back, and tougher measures were implemented to reduce household debt.

Corporate lending did not however slow until November, with annual growth totalling 18%, matching the 2023 record. Corporate lending expanded on the back of ongoing investment projects and housing construction, which were less sensitive to rising interest rates. The slowdown only became apparent once banks moderated their lending appetite, having by then drawn on a considerable part of their capital cushion. Loan portfolios cannot constantly grow faster than banking capital, a point I will return to later.

This year, we expect corporate lending to expand at a more moderate rate of 8–13%. Importantly, we do not foresee a contraction in credit, meaning that credit will continue to support economic growth. The dip in credit reported between December and January, which is likely to extend into February, is in line with seasonal trends and largely relates to payments for last year’s public procurement and advance payments for the new year.

The mortgage portfolio was up 13% in 2024, significantly below the overheated year of 2023. However, we consider this growth rate appropriate compared to previous years. This year, we expect it to come in at about 5%. While modest, this is a necessary correction following the excessive rise in 2023 and the first half of last year. As a reminder, mortgage lending was also growing at a very fast pace in the first half of last year. Growth in mortgages is expected to gradually accelerate as inflation and the key rate decrease in 2026–2027.

In the context of the construction industry, it is important to note that the sector is well-positioned to weather a temporary slowdown in mortgage lending. Increasingly, homes are being purchased using personal funds. While the share of own funds in escrow accounts was about 40% in 2023, it was more than 60% at the end of 2024. These are funds actually received excluding future payments under instalment schemes. Moreover, developers can boast a good margin of profit accumulated over the past two years.

Now on to consumer lending. Consumer loans expanded by a moderate 11% last year. Our estimate for this year is the range of −1% and +4%. Tight monetary conditions are expected to lower demand, while our policies against excessive household debt help further reduce high-risk lending.

We have seen notable improvements in lending standards, partly due to tighter regulation. Our policies aimed to mitigate potential losses from loans issued to highly indebted borrowers, and I believe we have been successful. However, risks remain.

For example, about half of newly issued mortgages come with a 20–30% down payment. Given that the price gap between new and existing housing has been above 30% in recent years, these down payments may be insufficient to fully repay the loan through sale of the property. Similarly, consumer loans to borrowers spending over half their income on debt servicing have fallen by a third to 26%. In mortgage lending, the share of such mortgage loans has dropped by even more than a third, but still remains high at 42%. This is explained by the very high initial share. We will take this into account when setting macroprudential limits on mortgage loans. These limits take effect in the second half of this year.

The rapid credit expansion of the past two years was facilitated by the capital and liquidity buffers that banks had accumulated by early 2022, thanks to regulatory easing. This capital and liquidity cushion helped support the economy by expanding lending.

Last year, intense competition for liquidity drove deposit rates higher, prompting us to extend the timeline for compliance with the liquidity coverage ratio. That said, such allowances will not continue. We expect banks to take a responsible approach to improving their balance sheets to ensure a smooth transition to the new national liquidity coverage ratio, which, while less stringent, will require a buffer of highly-liquid assets.

As for capital adequacy, the sector-wide ratios dropped by nearly 2pp to 12.5% as of the end of last year. This indicates that banks grew faster – as did lending – than the rate at which they earned and capitalised profits.

Banks need capital to sustain lending growth and cover potential losses in times of stress, ensuring stability, even if some borrowers prove less creditworthy than expected. The appropriate capital adequacy ratio is the cornerstone of financial stability and safety of depositor money, rather than a Basel or Voronezh formulation.

Out of 2024 profits, 2 trillion rubles were reinvested in capital. This level of capitalisation supports 10–12% growth in loan portfolios. In other words, further credit growth (irrespective of current monetary policy or the key rate) will need to be more moderate than over the past two years. Many banks lack excess capital and may even need to rebuild their buffers.

This underscores the importance of non-bank financing, such as issuing bonds and raising equity.

Let me now outline our priorities in banking regulation under current conditions. I will skip all the upcoming changes; many of which we have discussed on different platforms and in various formats. Instead, I will focus on several key points to allow more time for your questions later.

First, to help banks restore capital buffers, we have introduced a countercyclical capital buffer, set at 0.25% from February, and 0.5% from July this year. We will monitor the situation closely, but for now, we believe banks can comply with these ratios. The 0.5% buffer is reasonable, even after a period of overheating. Our lending estimates already account for the impact of this buffer, and as you can see, no credit contraction is anticipated.

Second, the accumulation of capital buffers will be incentivised by a macroprudential buffer of 20% for major overindebted borrowers, effective from April. We calculate that these companies account for 10–15% of the corporate loan portfolio. As a reminder, this buffer extends to newly issued loans if the overindebted borrower shows an increase in their debt.

It will affect ten banks that issue major loans, encouraging them to exercise greater caution and potentially prompting borrowers to seek financing from other banks or capital markets. This measure will also help reduce concentration in the banking sector.

While most companies remain profitable and capable of servicing loans at current rates, we must prevent the accumulation of risks that could threaten sector stability.

Third, on credit risk assessments, we are considering easing provisioning ratios for loan restructuring, but only in specific cases. This will not apply to old non-performing loans, as the associated risks should already be covered by provisions. Second, eligible companies should have a realistic business plan demonstrating steady and sufficiently fast improvements in its financial standing over a three-year horizon. If the plan proves unrealistic or falls through, additional provisioning will be required. It is essential that the problem is solved and discussed with borrowers in time to prevent long-term delays in applications for restructuring. If these conditions are met, higher provisions may not be necessary.

Speaking of credit risks, we plan to tighten requirements for provisions and risk weights for state-owned companies unless shareholders provide legally binding documents confirming their readiness to support borrowers struggling to service loans. These can include guarantees, sureties and subsidisation. In the absence of explicit obligations, banks should assess the financial position of a state-owned company in the same way as any private company.

Currently, some banks treat government participation as a risk-reducing factor, but the state is not always willing – and rightly so – to assume all risks and liabilities of state-owned companies.

To ensure more objective risk assessments, we will prohibit proprietary factors in expert adjustments used to reduce provisions when a borrower’s financial position is poor. One example is the government support factor when government support is unavailable. There are plans to implement the ban from 1 October 2025.

A similar approach will apply to risk weights in ratio calculations. Reduced risk weights should only apply to highly reliable, independent companies that do not require potential support. Therefore, we will tighten requirements for companies, including state-owned ones, to qualify as investment-grade by mid-year.

Fourth, on credit risk concentration, we presented a plan last year to reduce concentration and have since refined it based on feedback. This work is discussed in a recently published report. Our approach remains largely unchanged, with the new ratio set to be gradually implemented for systemically important credit institutions next year.

We support economic incentives, such as the ‘orange zone’, to achieve target concentration ratios. We have nonetheless decided that this should be a temporary measure for the next few years to enable banks to gradually reduce their concentration risks. Banks will have to pay penalties for risky credit policies, and we will discuss implementation with banks and the government this spring.

Fifth, we are finalising the concept of a risk-sensitive limit for immobilised assets, due between March and April. The rapid growth of ecosystems and investments in non-core assets has raised concerns. The highest concentration of immobilised assets is observed in major state-owned banks, amounting to about 30% of capital on average. We do not believe this is right. Banks should not turn into investment funds and pass investment risks (that is the risks of joint-stock investments) on to depositors. Therefore, investments in immobilised assets in excess of our cap will be deducted from capital, that is fully covered by the equity of the bank’s shareholders. That would not be tantamount to a ban for banks to participate in ecosystems, but a scheme to significantly limit risks for depositors. It will become effective from October 2026, but will be phased in so the banks have the time to adapt.

To conclude this part, I would like to speak on the role of banks in technological sovereignty and structural adaptation projects. Our incentive programme has been successful, with 45 projects worth over 3 trillion rubles underway by the end of 2024. Admittedly, this includes the record investments into high-speed lines. It is true that the high rates are holding back growth in the loan portfolio of these projects, but it is important that such projects begin. We are expanding incentive-based regulation Beginning from the middle of this year, the programme will cover sustainable development projects and bond investments. Basic licence banks will be eligible.

Since, as I have mentioned, banks’ lending capacity is limited by the profit they earn and capitalise, taxonomy is a good tool to incentivise banks to finance priority projects in the country.

Furthermore, as we have said, our regulation will factor in reduced risks for all concessions, and not only the technological sovereignty projects. We will present the parameters of concession regulation in March. We expect this regulation to be in effect from October 2026.

Moving on to another topic, every time we meet, the subject of consumer protection is high on our agenda. Unfortunately, we have to revisit this subject time and time again because of unfair practices of banks.

Let me begin with positive developments, though. There are changes for the better.

The regulatory amendments (I thank our legislators for them) have helped solve multiple cases of manipulated effective interest rate, a scheme that allowed banks to visually underestimate borrower expenses. There have been some attempts to circumvent this new regulation, for example, to mask overpayments on credit cards behind the low rate that only applied in the first month. We are stopping such practices.

Self-restrictions on loans are due to become operational in a matter of one day. We expect this arrangement to be in demand from consumers who fear fraud. We intend to closely monitor the operation of this service.

Now on to the negative side.

To date, the market retains some mortgage schemes that inflate housing prices and lead to higher payments, and a significant increase in payments after the grace period. You are well aware of our position as regards such schemes. They are meant to be prevented with the mortgage standard. Not to repeat myself, standard mortgages are due to become more attractive to banks. Such mortgages come without hidden dangers and are transparent in having a fixed rate and a clear schedule of payments. We also want to apply stricter rules (increased risk weights and provisions) to loans that deviate from standard parameters. In our opinion, this is quite justified as the so-called scheme mortgages involve higher risk for both borrowers and banks.

Furthermore, we intend to suggest that the Ministry of Finance only provide government support in the cases of standard mortgage loans and accept only securitised standard projects for refinancing. In other words, we want to make sure that there is no way subsidised mortgages could be tied to some schemes that discredit the very idea of state support.

This year, we will discuss the criteria for standard mortgages with you and the Banking Standards Committee this year.

At our last meeting, I also talked about hard selling in car loans. Since then many banks have agreed with the need for a change in their approaches. Although nine banks signed the relevant memorandum, there is no turnaround in car showrooms. Unfortunately, efforts are being made to tie loans to costly yet worthless services that are considered to be provided at the time of sale, meaning, they are not subject to refund. Taking advantage of our meeting, I would like to invite market leaders to join this memorandum and restore order within a reasonable time. Otherwise, we will approach this in a tougher manner and through regulation.

As regards comprehensive debt settlement, we have met banks’ needs in key issues. Yet, the new proposals we have heard are to essentially replace comprehensive settlement with a set of individual unaligned procedures. In our opinion, this does not make sense: borrowers can deal with each lender separately even now. The law is centred on the comprehensive nature of the process and the role of the creditor defined as the coordinator, as well as protecting the interests of borrowers taking on loans from different banks. Mr Aksakov, I would also like to ask you to focus on this draft law so that it is ready for submission to the Duma in line with the presidential instruction.

In my final remarks I would like to concentrate on the payments issue. This is an area that banks and the banking system can take pride in, and also one where customers benefit from banks’ ingenuity and flexibility. Cashless payments are convenient for individuals, and their share in sales is continuing to grow steadily. The share was up 2.4pp last year. This does not seem to be much, but once the base is high enough, each percentage of growth does not come easily. Cashless payments currently account for 85.8%. This is evidence of the quality of payment services and trust of households and businesses. We strongly support banks’ efforts to advance payments, but there are several points for discussion. Let me outline them.

The first is the introduction of a single QR code. Our position on the matter is unchanged: we have been analysing offerings from various banks. We believe that a universal QR code should be based on a National Payment Card System (NPCS) solution. This would ensure an equal playing field for all banks and minimise the need for customisation. Most costs of customisation are borne by the NPCS. Minor adjustments will be needed for banks that want to provide their pay services through a single QR. However, the pilot project we had with banks has shown, and the pilot was quite successful, that this does not take much time and is not costly, according to the banks in the pilot.

Another important project is the digital ruble.

The pilot has been successful. It covers clients of just 15 banks (currently 1,700 individuals and about 30 companies).

Questions are still coming from you about the scope of necessary improvements. Requests are being made to extend the timeline for the rollout of a digital ruble.

We are highly attentive to such requests considering our objective of ensuring that the digital ruble is in demand and consumers and businesses are confident in it. At the moment, we can see that banks, businesses, and the Government are taking interest in smart contracts. The digital ruble gives more options for smart contracts, and we want to make this to become a priority area in the development of this project. Since all this needs more discussion and preparations, we intend to shift the full-scale adoption of the digital ruble to a slightly later date than initially planned – once we have finalised all the details in the pilot and have completed consultations with banks to agree on the economic model most attractive to their customers, businesses and individuals alike. We will disclose the new date for full-scale adoption later.

Let me emphasise that the project is in the works and will be expanded in terms of number of participants and range of operations.

I will conclude at this point. We can discuss many topics in further detail, including those I have raised. I am now ready to take your questions. As Mr Aksakov said, we are a substantial delegation. My deputies and heads of departments are also ready to comment on questions you may have.

Thank you very much.