President of Russia Vladimir Putin: Ms Nabiullina, good afternoon!
The Address to the Federal Assembly included topics related in one way or another to the work, activities, and tasks that the Central Bank carries out. I would like to hear your opinion on this.
Governor of the Central Bank Elvira Nabiullina: Yes, indeed, several key tasks relate directly to the Central Bank’s activities. First of all, in the macroeconomic policy, you set the task to return inflation to the target level. Allow me to remind you that we have a target of 4 percent, but it is clear that inflation fluctuates around that level – from slightly above to slightly below. For a while, it was lower than 4 percent. Last year it was slightly higher, 4.3 percent. This year, due to temporary factors, even one-off factors, it has risen to about 5 percent, but we can see that the adjustment of prices to the higher VAT is quite moderate. Of course, we will not see the full picture until April.
Nevertheless, we assume that by the middle of the year, inflation in quarterly terms will be 4 percent. The statistical effect of high prices will persist, but in general, it will be close to 4 percent by the middle of the year, and we hope, expect and are implementing policies to bring it close to 4 percent next year.
Vladimir Putin: You and I expected this when we talked at the end of last year, discussing measures related to the implementation of the plans for national projects, when the decision on raising the VAT was made. It was unavoidable, and we talked about it too. As I said in the Address, the only thing that matters is to continue implementing those plans to stabilise the situation that you have spoken about.
Elvira Nabiullina: This is really important, since lower inflation entails a gradual reduction in interest rates. This is important in terms of the second objective, which is to promote mortgage lending.
Vladimir Putin: This includes mortgage lending, as well as reviving manufacturing in general.
Elvira Nabiullina: This past year was quite good for the mortgage segment. New mortgages increased by 50 percent, totalling 3 trillion rubles, up from 2 trillion in 2017. Of course, interest rates inched up just a little bit in the last month of the year. We are now monitoring the situation and expect it to stabilise, to say the least.
It is essential that the new programme, which is in fact an extension of the programme designed to help young families to take out mortgages, will support mortgage lending. Of course, it is important that a tool will be created, and we are working on amending laws in order to introduce mortgage payment holidays. We are aware of the fact that many people hesitate when it comes to taking out a mortgage. Taking out a loan for 10, 15 or 20 years is always a huge responsibility. People are afraid that they could lose their job or lose income.
So if we create a legal framework enabling people to take a mortgage payment holiday once over the repayment period, I think this would make people more confident when taking out mortgages. In this regard, we do not expect banks to incur any losses, since for them the total amount of the loan remains unchanged. All they would do is provide a six-month payment holiday. I think this could make mortgages more attractive as a product, as is the case in many countries.
Vladimir Putin: Russia had something of this kind. For example, this approach is currently used in Tatarstan, and the Agency for Housing Mortgage Lending used it in the past.
Elvira Nabiullina: Yes, but what they did was loan restructuring, which meant changing interest rates. This time the interest rates would remain unchanged, so when a person is out of a job (usually it takes people five to nine months to find a new job), in some cases payments can be covered by insurance. However, it turns out that insurers require that people register with an employment office. But not all people register as unemployed. They have other ways of finding a job. So this is also possible.
Here is one more thing. You set the goal to develop (we will do so with the banks) a product for individual housing construction, because there is also a lot of potential, and the banks can do their fair share.
Bringing things to order on the microloan market is another matter that needs our attention.
Vladimir Putin: I am aware that the Central Bank does not really want to do this.
Elvira Nabiullina: No, we are working on it. We are bringing things to order. Five years ago, we had 4,500 microloan organisations, and now their number is down to 2,000. We have tightened our requirements to them.
Of course, microloan organisations should not engage in usury and take advantage of the fact that people with low incomes go and take out loans at high interest rates. It was decided to gradually reduce the maximum amount of debt that a person is allowed to have. At a certain point, individuals were allowed to have four debts, then recently, this number was reduced to three. Since January 2019, it is down to 2.5, and in July it will be reduced to two and from January 2020, 1.5. In other words, it reduces the flat-out amount of debt that a person can have with microfinance organisations.
Vladimir Putin: Reduces risks.
Elvira Nabiullina: Illegal lenders. which are not registered with the Central Bank and which we do not regulate, is something that we are really struggling with. They run illegal ads.
We believe that access to the websites that advertise illegal activities of these sham microfinance operations should be blocked, and their responsibility should be increased, by measures such as making it illegal for all microfinance organisations, including legitimate ones, to pass loans down to illegal collection agencies. There are unregistered collectors who buy up loans and then harass debtors. Here, we can restore order only with the help of the Prosecutor General’s Office; we are working with them to identify such illegal lenders.
Vladimir Putin: What are your proposals with regard to increasing responsibility?
Elvira Nabiullina: Two options are being discussed: to increase administrative responsibility, since the fines are very low, or even introduce criminal liability.
Vladimir Putin: I would like you and the Prosecutor General’s Office to submit both options to me.
Elvira Nabiullina: Will do.
I would like to say a few words about the banking system. It is functioning steadily, and the volume of loans has been growing in the first months of 2019. If we leave currency revaluation off the table, since our currency rate is fluctuating, loans to the economy are up 1 percent for the month. Loans to individuals have been growing faster, at 1.3 percent.
Vladimir Putin: Last year was the same.
Elvira Nabiullina: Yes.
Loans to legal entities are also on the rise at 0.8 percent. In general, the banking system has enough capital and revenue to continue to finance the economy.
We are gradually fine-tuning regulations to encourage the banks to lend more to industrial enterprises, including project financing.
The banking system is facing a challenge with switching to a new principle of lending to the construction business. We have changed our regulations and it is now important for the developers to bring their projects to the banks, not to drag their feet, in order to start building a new practice of relations between banks and construction companies.
Vladimir Putin: Good. Thank you.