Interest Expense

RUB RUB 12.6 bln, or 14.0%, to RUB 102.1 bln from RUB 89.5 bln for the year ended 31 December 2018.

2019 2018 Change
RUB bln % of total RUB bln % of total %
Due to customers 67.1 65.8% 48.6 54.3% +38.0%
Due to credit institutions and CBR 25.5 25.0% 32.1 35.8% -20.4%
Debt securities issued 9.4 9.2% 8.8 9.8% +7.1%
Total interest expense: 102.1 100.0% 89.5 100.0% +14.0%
Average rate on interest-bearing liabilities (%) 5.2% 5.1%

The overall increase in MKB’s interest expense during the period under review was driven by growth of interest expense on due to customers and debt securities issued. The average interest rate paid by the bank on interest-bearing liabilities was 5.2% and 5.1% for the years ended 31 December 2019 and 2018, respectively.

Interest Expense on Due to Customers

Interest expense on due to customers remained the largest component of MKB’s total interest expense during the periods under review, representing 65.8% and 54.3% of total interest expense as at 31 December 2019 and 2018.

For the year ended 31 December 2019, interest expense on customers’ current accounts and deposits increased by RUB 18.5 bln or by 38.0% to RUB 67.1 bln from RUB 48.6 bln as at 31 December 2018. This was caused by the general increase in due to customers by 5.3% to RUB 1,339.5 bln for 2019 as compared to RUB 1,272.2 bln for 2018, and a repricing of large corporate deposits in the first half of 2019. The average interest rate on current accounts and deposits by customers rose from 4.7% in 2018 to 5.4% in 2019.

Interest Expense on Due to Credit Institutions and CBR

Interest expense on due to credit institutions and the Bank of Russia represented 25.0% and 35.8% of total interest expense as at 31 December 2019 and 2018, respectively.

This was due to a decrease in the average interest rate paid by MKB on deposits by credit institutions from 5.3% in 2018 to 4.4% in 2019, in line with the market trend, and a decrease in the average amount due from financial institutions by 3.6% to RUB 583.7 bln.

Interest Expense on Debt Securities Issued

Interest expense on debt securities issued represented 9.2% and 9.8% of total interest expense for the years ended 31 December 2019 and 2018, respectively.

For the year ended 31 December 2019, interest expense on debt securities issued increased by RUB 0.6 bln, or 7.1%, to RUB 9.4 bln from RUB 8.8 bln as of 31 December 2018. This was mostly attributable to two FX-nominated Eurobond issues placed in February and March 2019. The average interest rate on debt securities issued decreased from 7.7% in 2018 to 6.2% in 2019 in line with the market trend, while the average amount of debt securities issued rose by 32% to RUB 151.4 bln as two FX-nominated Eurobonds were issued in the international market and rouble bonds in the domestic market, availing of favourable market conditions.