Massive denials by banks during debt restructuring revealed by the Central Bank's latest report
In the second quarter of 2025, there has been a significant increase in applications for debt restructuring and credit holidays, as well as an uptick in applications for mortgage holidays.
One option for debt restructuring introduced in 2024 is credit holidays, which allow a six-month deferral without penalties or seizure of collateral. However, data suggests that banks have refused to grant credit holidays to borrowers in 80% of cases in Q2 2025. The Central Bank attributes this to the lack of legally established documents confirming a deterioration in the borrower's financial situation.
Andrey Barkhota, an independent expert, attributes the increase in applications for easing credit terms to increased consumer spending, higher interest rates, and citizens' re-evaluation of their ability to service loans. Natalia Milchakova, the leading analyst at Freedom Finance Global, points to the end of the preferential mortgage program on July 1, 2024, and the uneven growth of wages in regions as factors contributing to the increase in applications for easing credit terms.
The new Macroprudential limits (MPL) introduced by the Central Bank on October 1, 2025, target borrowers with a high debt-to-income ratio above 80%. These restrictions are aimed at individual housing construction and non-purpose consumer loans secured by real estate. The loan amount for debt restructuring should not exceed the legally established limit, such as 450,000 rubles for consumer credit. A borrower can request leniency once in case of an extraordinary situation and once in case of a significant drop in income, which must decrease by more than 30% over two months.
The Central Bank's new restrictions are effective as of October 1, 2025, targeting high-debt borrowers. In the euro area, banks reported tightening credit standards for consumer credit and housing loans in Q2 2025, which could indicate a more cautious approach to lending. This tightening is largely driven by banks' perceptions of risk and economic uncertainty. There was a slight increase in demand for loans to firms and a strong increase in demand for housing loans, but consumer credit demand was modest.
These broader trends suggest that banks might be cautious in granting credit holidays due to economic uncertainty and a focus on maintaining robust credit standards. Banks like Bank of America have been maintaining tight underwriting standards, which could influence their decisions on credit holidays. This suggests that banks might prioritize maintaining strong credit portfolios over offering temporary relief measures.
In conclusion, the rising demand for debt relief and the tightened lending standards indicate a growing concern among citizens about their ability to service loans. The Central Bank's new restrictions aim to protect high-debt borrowers, while banks are taking a more cautious approach to lending due to economic uncertainty.
- Despite the significant increase in applications for debt restructuring and credit holidays, banks have been reluctant to grant credit holidays to borrowers, largely due to the lack of legally established documents confirming a deterioration in their financial situation.
- The Central Bank's new restrictions on high-debt borrowers, as well as the more cautious approach to lending by banks, suggest that banks might prioritize maintaining strong credit portfolios over offering temporary relief measures, such as credit holidays.
