The attachment of Russian financial institutions to secured lending could turn the banking system into one big pawnshop, Russian Central Bank Governor Elvira Nabiullina said on Thursday, July 13, during a speech at the 26th International Financial Congress, Rambler News Service reports.
“Another major layer of problems is associated with collateral. What is this all about? In the Russian banking system, secured lending accounts for a substantial portion of overall lending”, she noted.
Collateral is a good tool for motivating borrowers to repay their debt, Nabiullina added. “But at the same time, we see that many banks, when issuing a loan, immediately count on the enforcement of the collateral as a source of repayment for the loan, and sometimes even hand out loans to enterprises on the verge of bankruptcy while looking specifically at the quality of their collateral”, she said.
Earlier on July 13, Nabiullina also said that the Central Bank regulator would work to fully rid the banking market of unscrupulous players and that its cleansing would serve as a guarantee for healthy competition. “Honest business should not have to compete with scammers”, she said.