Russian banks refinance consumer loans en masse, fighting for clients

Russian banks refinance consumer loans en masse, fighting for clients
A price war has broken out amongst Russian commercial banks trying to secure new accounts
By bne IntelliNews May 14, 2018

Russia's largest banks launched cut interest rates en masse in an offer to refinancing existing consumer loans in what is starting to look like a price war to win new customers, Vedomosti daily reported on May 11 citing representatives of country's biggest lenders.

The cheaper rates will help clients to cover outstanding consumer debt with new cheaper loans, but brings in new and cheap sources of financing for the banks as competition heats up.

"Refinancing does not require considerable costs, and it seriously simplifies servicing the [consumer] loans," Pavel Simonov of Sberbank told the daily.

Refinancing the loans allows cutting the interest rate, bundling up several loans, and cut monthly servicing costs. The service has been revived for the first time since 2014 as interest rates decline and banks start competing for solvent borrowers.

Such services have been proposed since 2017 by Alfa Bank, Rosbank, Raiffeisen bank, Uralsib, and others, as well as now bailed-out Promsvyazbank (PSB), Financial Corporation Otkritie, and Vozrozhdenie Bank affiliated with the PSB.

Notably, the banks propose to refinance both their own loans and the loans issued by other banks, both of which is now allowed by the Central Bank of Russia. The only bank not restructuring its own loans is state-controlled major VTB, seeing the measure as pertinent solely in the case of worsening credit quality of the borrowers.

The service is advantageous to the borrowers and became one of the most popular retail products, as the average interest rates on consumer loans decline by 2-4pp on average across the sector, analysts surveyed by Vedomosti note. Minimum refinancing rates for the banks declined from 14-16% to years ago to 10.5-12% currently.