Laws giving Russian banks the right to take possession of collateral from debtors should be in place by the end of the year, bankers’ association spokesman Anatoly Aksakov said yesterday.
“The most pressing need for legal reform is in respect of borrowers’ security. The procedure for taking possession of security, and the property rights of lenders, are not clear in current legislation”, Aksakov told a seminar at the Russian Regions Investment Forum in Kazan yesterday.
The legal framework is lagging behind the rapid expansion of the banking system, Aksakov warned. “Credit portfolios grew by 30 per cent last year. But our legal framework is way behind that of the US and Europe.”
Outside the seminar, Aksakov, a parliamentary deputy and president of the Association of Regional Banks, told Emerging Markets that legislation on security would be introduced in October and should be signed in to law by the end of the year.
Derivatives legislation, which bankers consider essential for the development of the Russian market, went through parliament last year but was sent back to deputies for amendment by president Putin. A new draft now being prepared will provide for guaranteed credits, instruments with early repayment options, procedures for using physical assets for repayment, for the issue of high-risk instruments, and for the issue of derivatives in Russia by foreign institutions, Aksakov said.
Legislation is also being introduced to regulate the retail lending sector, which has grown seven-fold in the last five years, and expanded by 80% in 2006 alone. “Non payment is growing twice as quickly as lending, and this is storing up problems,” Aksakov said.
A working group is presenting a draft law to deputies on May 28, which will compel consumer finance banks to tell customers real loan rates, and on the other hand provide a framework for debt collection.
“Currently debt collection is often done in an unsavoury and uncivilized way”, Aksakov said. “This business must be properly regulated.”
The Russian consumer affairs regulator, Rospotrebnadzor, has recently taken high-profile cases against retail lenders for presenting unclear information to clients. Court judgements have been made in favour of borrowers who claim they were cheated.
The issue of personal bankruptcy is also being considered by legislators, although is some concern that the concept should be introduced without loopholes that will aid dishonest borrowers.
Kirill Shpigun, chief executive of Bank Zenit, told the seminar that a stronger legislative framework for retail lending is “an absolute priority”.
Another pressing need is for securitisation of assets, a legislative framework for which is now being prepared by the Federal Service for Securities Markets, Aksakov said. Bank capital is growing at 27%, against 32% per year growth of assets, meaning that asset-capital ratios across the Russian system are deteriorating.
Alain Pilloux, EBRD regional head of Russia and the CIS, told the seminar that the bank was focusing on developing products that Russia needs for the next stage of its economic growth: longer-term corporate lending, leases, mortgages and securitisation.
“Lack of equity is constraining growth much more than a lack of debt”, he added. The EBRD intends to increase the proportion of equity to debt, currently just 5%, in its Russia portfolio.