Household Debt in Russia Over 170 Billion Euros

reliable future consumer credit coopReliable Future Consumer Credit Cooperative is one of many retail lenders ready to help ordinary Russians “boost their standard of living.” Photo by the Russian Reader

Household Debt of Russians Exceeds Twelve Trillion Rubles
Half of This Amount Was Borrowed Over the Last Year
Emma Terchenko
Vedomosti
January 31, 2018

This emerges from statistics gathered by the United Credit Bureau (OKB), based on information about the outstanding loans of 82 million Russians.

According to the Russian Central Bank, the Russian populace’s bank debt grew by 13.2% in 2017 to 12.2 trillion rubles [approx. 170.75 billion euros].

The OKB’s calculations show the number of new loans grew more slowly than their total amount. Over the past year, loans increased by 37% compared to 2016 (by 4.14 trillion rubles), whereas their quantity increased only by 12% to 34.8 million individual outstanding loans.

Moreover, an increase was observed in all segments of the loan market—mortgages, cash loans, auto loans, and credit cards—according to the OKB’s statistics.

Banks mostly disbursed money to Russians in the form of cash loans: nearly 3 trillion rubles or 33% more than in 2016. The number of such loans reached 24.7 million units, an increase of 14%.

The total amount of mortgages issued for the year increased by 42% to 1.8 trillion rubles, while the total number rose by nearly a third to 959,237 individual mortgages. According to Rusipoteka, a financial analytics company, 53% of the housing mortages issued last year were supplied by Sberbank.

In November, the mortgage portfolios of Russian banks exceeded a record five trillion rubles, the Central Bank reported previously.

“Afer the crisis, banks tried to build up their mortgage portfolios. Many of them reduced their down payments to accomplish this. Therefore, amongst the loans issued last year, around a third had down payments of less than 20%,” says Rusipoteka director Sergei Gordeiko.

According to the OKB, auto loans for all of 2017 increased by 36% to 333.3 billion rubles or by 25% to 436,539 individual loans. The National Credit History Bureau (NBKI) estimated the annual growth of auto loans at 29%.

“Auto loans have returned to pre-crisis levels, and the share of cars bought on loan has been growing,” notes NBKI’s director general Alexander Vikulin. “In 2017, every other automobile in Russia was purchased with a loan.”

The OKB claims credit cards are the fastest growing segment. Although the number of new credit cards issued last year grew only by 8% to 8.65 million cards (this figure excludes replacement cards), their total limit increased by less than half: by 48% to 544.5 billion rubles.

According to the NBKI, the number of newly issued credit cards grew by 52.6% to 6.87 million units in 2017. Equifax reported an 52% increase to six million new cards issued on the year.

The reason for the discrepancy is the databases of creditors monitored by the various credit bureaus differ. Unlike other credit bureaus, the OKB receives all information about loans made by Sberbank, which, according to different estimates, accounts for 42% to 46% of the loan market. The NBKI, for example, does not monitor figures from Home Credit Bank. None of the three bureaus—OKB, NBKI, and Equifax—take Russian Standard Bank’s statistics into account.

With its share of the credit card market, Sberbank has an impact on discrepancies in the calculations of the OKB and the other bureaus, argues Frank RG director general Yuri Gribanov.  According to Frank RG’s data, based on the management statements of banks and taking into account the utilization of credit limits and overdue debts, Sberbank’s portfolio of credit cards and overdrafts constituted 42.5% of the overall portfolio of all Russian banks as of December 1, 2017. During the year, it grew by 16.4% to 559.6 billion rubles.

A Sberbank spokesperson did not provide exact figures for the issuing of new credit cards last year, but confirmed they had not grown, remaining at a “consistently high level.”

Tinkoff Bank issued 2.41 million new credit cards in 2017, 43% more than the previous year, while Sovkombank issued more than a million credit cards. Vostochny Bank increased its issuing of credit cards by 140%, OTP Bank, by 135%, and VTB Bank by 13% (440,000 cards).

“The main reason for the growth is that banks have returned to sales channels that were frozen after 2015, for example, lending to walk-in customers,” says Alexei Shchavelev,  director of the cross-selling department at OTP Bank.

“In addition, many banks now have built up a broad base of quality customers: payroll customers, debit card holders, borrowers. It is now much easier for them to sell credit cards, because this customer base has been clarified,” Pavel Samiyev, managing director of the National Rating Agency, explains.

The demand for credit cards from borrowers themselves has been caused by the growth of consumer activity in general and improved customer solvency, argues Rostislav Yanykin, director of Russian Standard’s credit card sales. In the fight for customers, banks have been offering increasingly advantageous terms for using credit cards, he admits.

People who take out loans to boost their standard of living have mainly fueled the growth in lending to the populace, argues Nataliya Orlova, chief economist at Alfa Bank.

“In the past two years, they suffered more than others from the crisis in terms of reduced purchasing power.”

According to NBKI’s Vikulin, retail lending has been growing due to the economy’s stabilization.

Translated by the Russian Reader

NB. According to a May 17, 2017, article in the New York Times, household debt in the US had risen to $12.73 trillion in the first quarter of 2017, a new peak. Converted into rubles, this would amount to approx. 742 trillion rubles at current exchange rates. Based on the latest UN estimates, the current population of the US is nearly 327 million people, while the population of the Russian Federation is nearly 144 million people, based on the same estimates. In 2016, GDP (PPP) per capita in the US was over $57,000, while it was just over $23,000 in Russia, according to figures published by the World Bank. TRR

Poor Russians Up to Their Necks in Debt

ruble coin 2This one-ruble coin, minted in 2014 and sporting the newish symbol for the ruble, adopted in 2013, won’t buy you love or much anything else. 

Poor Russians Go into Debt
Tatyana Lomskaya
Vedomosti
October 11, 2017

Low-income Russians have been unable to wait for an uptick in incomes and have turned to loans to meet their consumer needs. Experts, including the Central Bank, believe such borrowers are a danger to the economy.

The demand of Russians for loans has been growing. In August, their arrears to banks rose to levels not seen since the spring of 2014. Ruble-denominated loans reached their maximum historic high, according to RANEPA’s monthly newsletter Monitoring the Economic Situation in Russia. Banks have been vigourously issuing loans. In July, they provided Russians with 23% more loans than at the same time last year. Consumer loans have been the fastest growing. According to the National Credit History Bureau, such loans increased by 27% over the past eight months.

Loans have been playing a growing role in the budgets of Russian families, notes the newsletter. In the first six months of the year, new loans made up 21% of household final consumption expenditures. This is significantly higher than the crisis levels of the last two years (15–18%), although it is still below the peak levels of 25–27% in 2013–2014. With virtually no increase in the real incomes of individuals, this generates additional risks to their financial circumstances, noted RANEPA’s analysts.

Residents of poor and distant regions are the biggest borrowers of consumer loans at the moment, along with the poorest segments of the populace, notes Natalya Zubarevich, director of the regional program at the Independent Institute for Social Policy. This is how they offset falling incomes. Wages in Russia have been growing since August 2016, but real incomes have continued to fall.

People cannot skimp and save forever. People turn to loans to meet their needs, says Zubarevich. What matters is that banks not issue too many loans, which would raise the specter of a huge number of defaults.

The debt burden has been growing more quickly in regions with the highest poverty levels, according to the FR Group, although the situation varies from region to region, notes project manager Anastasia Zyurkalova.

Russians have been spending more and more of their income on consumption. According to some indications, they have abandoned the savings model of financial behavior, acknowledges Yelena Grishina, head of RANEPA’s research laboratory on pension systems and social sector actuarial forecasting. One of the ways they survive is by taking out loans. Certain segments of the populace have outlived the means they once had for limiting consumption. In the first six months of 2017, a linear dependence bwtween increases in the volume of loans and poverty levels in the regions was observed, says Grishina. Russians are now more positive than a year ago: they have assessed the changes in their welfare, and the percentage of those who skimp on food and clothing has decreased, note RANEPA’s analysts [sic].

The burden of non-mortgage loans is highest in regions with high unemployment and a poorer populace, Alfabank’s chief economist Natalya Orlova wrote last autumn. The middle class [sic] would be unlikely to emerge as the main source of the growth in demand for retail loans, she noted. The average borrower is more likely to be someone with a limited income. Judging by the numbers for the first six months of 2017, nothing has changed, says Orlova. It is still less well-off Russians who want to bring their consumption up to average levels. The increase in retail loans in the poorest regions is likely due to people’s tapping out their savings and and trying to maintain a certain level of consumption, agrees Karen Vartapetov, an analyst at S&P.

A significant portion of the demand for consumer loans comes from people whose incomes are less than the median income in Russia. Often, their incomes are unstable as well, and their debt burdens are high, noted analysts in the Central Bank’s research and forecasting department. (Their opinions may differ from the financial regulator’s official stance.)  Yet banks currently do not really have the capacity for an increase in lending, and so even a moderate uptick in consumer loans is fraught with risks no less serious than during the 2010–2012 loan boom. To limit these risks, the Central Bank has been working out individual debt burden indicators, notes a source at the regulator. The share of an individual’s expenditures on repaying loans should be such she could continue to pay back the loan even if negative events were to occur.

For the time being, the largest banks surveyed by the Central Bank have reported that the percentage of borrowers with increased levels of debt burdens has not grown, and the number of people with monthly incomes of less than 20,000 rubles [approx. 290 euros] who have taken out cash loans has fallen, says the source at the regulator. The banks have been forced to behave more conservatively. Everyone well remembers the wave of late payments in 2012–2013, says Yuri Gribanov, CEO of Frank RG.

After the crisis of 2015, the quality of loan applicants has not improved considerably, notes Sergei Kapustin, deputy board chair of OTP Bank. There are still many people with problematic debts that have not been managed and refinanced at another bank. According to certain channels, the share of such debts is ten percent, and banks have been forced to lower the number of loans they issue. In addition, a number of bankers issue unsubstantially large loans to people who have borrowed money at other banks in amounts disproportionate to their incomes.

The demand for consumer loans is currently quite high, says Mikhail Matovnikov, Sberbank’s chief analyst, and there are still a lot of extant bad loans at high interest rates, especially among low-income Russians. This not at all what the economy needs, and it is bad for borrowers, too, he argues.

The banks’ fight against such loans has pushed borrowers into the arms of microfinance institutions, where the circumstances can be even worse. This year, the microlending market has grown from 186 billion rubles to 242 billion rubles [approx. 3.5 billion euros]. The banks have not met the steadily growing demand for loans, according to research by microlender Home Money.

home money

A screenshot from Russian microlender Home Money’s website. “It’s simpler to make a phone call than to borrow from somebody! Call if you need to! New services: personal legal consultant; home protection; credit history.”

Measures to limit interest rates cooled the consumer lending market in 2015–2016, notes Dmitry Vasilyev, an analyst with Fitch. Currently, the portfolio’s growth matches the nominal growth in incomes of Russians (2–3% during the first sixth months of 2017) and the percentage of risky and unsecured loans has lowered. Some borrowers have drifted to the microlenders, while some banks have been weeded out due to noncompliance with tougher standards, says Vasilyev.

Orlova points out the banking sector is at a crossroads. Maintaining quality lending means not taking on as clients people working in the informal sector and incapable of confirming how much they make and microlenders currently lending at very high rates. Or banks could increase their appetite for risk and take on inferior borrowers to increase their market shares and loan portfolios. Banks have to earn money. If there are no borrowers willing to pay (for example, the government, which would have to become much more active in the state debt market), the issue would become particularly critical. Prospects for income growth in the coming year are worsening, and the risk that not very well-off people would not be able to service their loans is growing, warns Orlova. Poverty will not seriously decline in Russia in the coming year, if we believe the government’s three-year macro forecast, as submitted to the State Duma. It will drop from 12.8% of the populace this year to 11.2% in 2020, i.e., it will not drop to the levels of  2012–2013 (lower than 11%).

Translation and image of the ruble coin by the Russian Reader. Thanks to Comrade Koganzon for the heads-up. The original article, as published yesterday by Vedomosti on the front page of its paper edition, was behind a paywall. Thanks to Press Reader for providing me with the text of the article.

This Is Russia

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“This is Russia. This is the Russia that Americans are so scared of.”

In the background of this photo, you can make out the Galeria Shopping Center, located in downtown Petersburg. It’s gigantic, covering the land once occupied by five or six graceful tenement buildings and a cultural center and cinema. They were demolished in the mid 1990s, not to make way for the shopping mall, but so a new train station could be built there, jeek by jowl with the existing Moscow Station, because federal and regional officials wanted to build a high-speed train line between Petersburg and Moscow. Millions of dollars were allocated for the project, but ultimately, the train line was never built nor was the new station erected. No one knows what happened to the millions of dollars allocated for the project. They simply vanished into thin air.

The site of the former-future high-speed train station sat vacant for many years behind a tall, ugly construction-site fence. No one could figure out what do to with all that wasteland, which was in the very heart of the city, not in some forgotten outskirts. However, before the money had vanished, and the project was abandoned, construction workers had managed not only to demolish all the tenement buildings on the site but had also dug a foundation pit. Over the long years, this pit filled up with water. Some time after Google Maps had become all the rage, I took a look at our neighborhood via satellite, as it were, and discovered to my great surprise it now had a small lake in it. It was the foundation pit of the former-future high-speed train station, filled to the brim with water.

Good times came to Petersburg in the 2000s, when the country was flush with cash, generated by high oil prices, a flat tax rate of 13%, and runaway corruption. It was then the city’s mothers and fathers (I’m not being ironic: most of Petersburg’s “revival” was presided over by Governor Valentina Matviyenko, a former Communist Youth League functionary who had converted to the gospel of what she herself called “aggressive development”) decided that Petersburg, one of the world’s most beautiful, haunting, enchanting cities, should be extensively redeveloped, despite its status as a UNESCO World Heritage Site, into a mecca of consumerism that would give pride of place to cars and new highways, since cars had become the new status symbol among the city’s rich and poor alike. They also decided that, since other big cities in the world had lots of high-rise buildings, their city, which did not have almost any high-rise buildings, should have lots of them, too.

Basically, they decided to demolish as much of the inner and outer city as they could get away with—and they could get away with a lot, because they had nearly unlimited political power and lots of the country’s money at their disposal—and redevelop it with high-rise apartment buildings, superhighways, big box stores, and shopping and entertainment centers, each one uglier and bigger than the last. Thanks to their efforts, in a mere fifteen years or so they have gone a long way toward turning a Unesco World Heritage Site into an impossible, unsightly mess.

But let’s get back to our miniature inner-city lake. Finally, developers came up with a plan to convert the site into a giant shopping mall. Even better, the architects who designed the mall were clearly inspired by Albert Speer, Hitler’s favorite architect and a leading Nazi Party member, to turn a rather oversized mall into a celebration of kitsch faux-neoclassicism, precisely the sort of thing Speer had championed in his projects. This, indeed, was a bit ironic, because Petersburg, then known as Leningrad, had survived a 900-day siege by the German army during the Second World War. Considered the longest and most destructive siege in history, it killed at least 800,000 civilians, that is, it killed the grandparents and great-grandparents of many of the people who now enjoy visiting this mall, with its distinctly neo-fascist aesthetic.

Along the sides of the street running down towards the photographer from the Albert Speer Memorial Shopping Center, you see lots of shiny new, fairly expensive cars, parked bumper to bumper. In fact, the Albert Speer has a huge underground car park where you can park your car relatively inexpensively (our neighbor lady, a sensible woman, does it), but most Petersburg car owners actually think parking their cars wherever they want—especially either right next to their residential buildings or, worse, in the tiny, labyrinthine, incredibly charming inner courtyards of these eighteenth- and nineteenth-century buildings—is their legal right. It isn’t, but they don’t know it or don’t want to know it. I know they think this way because many Petersburg car owners have told me so.

To my mind, the precipitous rise in personal car ownership in Petersburg has done more to degrade the city’s beauty than all the underinspired colossal high-rises put together, because the city was purposely designed by its original builders, beginning with Peter the Great, to have a good number of intersecting and radiating, awe-inspiring, long and clear sightlines or “perspectives.” Hence, many of the city’s longest avenues are called “prospects,” such as Nevsky Prospect (the title of one of Nikolai Gogol’s best stories) and Moskovsky Prospect. Nowadays, however, you gaze down these “perspectives” only to see traffic jams and hectares of other visual pollution in the shape of signs, billboards, banners, and marquees. It’s not a pretty sight.

On the right of the picture, somewhere near the middle, you should be able to spot a small shop sign with the letters “AM” emblazoned on it. It’s one of the dozens of liquor stores that have popped up in our neighborhood after the Kremlin introduced its countersanctions against US and EU sanctions, which were instituted in response to Russia’s occupation of Crimea and invasion of Eastern Ukraine. The US and EU sanctions targeted individuals and companies closely allied with the regime. Putin’s countersanctions, in a manner that has come to seem typical of how the Russian president for life’s mind works, were targeted against Russian consumers by banning the import of most western produce into the country. An exception was made for western alcoholic beverages, especially wines and beers, and this meant it was suddenly profitable again to get into the liquor business. The upshot has been that you can exit our house, walk in any direction, even putting on a blindfold if you like, and you will find yourself in a liquor store in a matter of minutes, if not seconds.

Last summer, I tried painting a little verbal and photographic sketch of the effect this massive re-alcoholization has had on our neighborhood, along with other, mostly negative trends in the use and abuse of commercial space in the city.

Finally, there is one other thing you should know about all those new, mostly oversized cars parked on the street. Since the average monthly salary in Russia barely crawls above 600 or 700 euros a month, even in a seemingly wealthy city like Petersburg, most of those gas-guzzling, air-polluting status symbols were bought with borrowed money.

Just the other day, in fact, I translated and posted a tiny article, originally published in the business daily Kommersant, about how people in the Voronezh Region currently owed banks approximately two billion euros in outstanding loans. In 2015, the region’s estimated population was around 2,300,000, so, theoretically, each resident of Voronezh Region now owes the banks 870 euros, which I am sure is more than most people there earn in two or three months. Of course, not every single resident of Voronezh Region has taken out a loan, so the real damage incurred by real individual borrowers is a lot worse.

I could be wrong, but I think what I have just written gives you a rough idea of how you go about reading photographs of today’s Russian cities, their visible aspect in general, turning a snapshot into something meaningful, rather than assuming its meaning is obvious, right there on the surface. You don’t just tweet a photo of a new football stadium or fancy restaurant or street jammed with expensive cars and make that stand for progress, when progress, whether political, economic or social, really has not occurred yet in Russia, despite all the money that has been sloshing around here the last fifteen years. Instead, you talk about the real economic, political, and social relations, which are often quite oppressive, murky, and criminal, that have produced the visible reality you want to highlight.

Doing anything less is tantamount to engaging in boosterism, whataboutism, Russian Worldism, and crypto-Putinism, but certainly not in journalism. That so many journalists, western and Russian, have abandoned real journalism for one or all of the isms I have listed is the really scary thing. TRR

Photograph by the Russian Reader

 

 

 

Fruits and Vegetables

“Fruits Vegetables”

Anyone who blames the US Foreign Service and its 755 staffers, most of them Russian nationals, who even as I write this are either being removed from their posts and sent back to the States, or (the vast majority) summarily fired without cause from their jobs at the US embassy in Moscow and the US consulates in Petersburg, Yekaterinburg, and Vladivostok, for the earth-crushing “visa crisis” now “unfairly affecting ordinary Russians,” should actually try and figure out what is going on and who is to blame for the so-called crisis before writing yet another wildly misinformed Facebook or Telegram post about how it’s all the fault of Donald Trump, the State Department, and the obtuse staffers in the visa departments at the US embassy and consulates in Russia.

Vladimir Putin, President of the Russian Federation, is to blame for the “crisis,” because it was he who ordered the summary dismissal or removal of 755 embassy and consulate personnel by September 1, 2017.

He knew quite well his order would, among other things, make it difficult for the US embassies and consulates to process visa requests at the pace required by all those “ordinary Russians” and to do this in the big cities where they either live or live near.

But I have seen hardly any mention of Putin’s role in the affair, especially in the tumultuous fountain of collective wisdom known as Facebook, where yet another festival of free-floating anti-Americanism has erupted.

President Putin, if he actually read Facebook, would be pleased to see what some of his countrymen have been writing, because he would be witnessing the wild flowering of the anti-Americanism he has been carefully planting in place of communism as the country’s ruling ideology over the last eighteen years.

I admit he has been going about it in a way that sometimes suggested he was, instead, “fostering better relations” with the US, but nobody who has actually been following the vicissitudes of his regime and his actual moves and key policy statements would have been fooled by that transparent ruse.

But enough of Putin. He’s a super villain and can thus be excused for doing mean, hurtful things to hundreds of people he has never met. That’s his job.

What about his virtual countrymen, who for the last several days have been writing lots of mean, hurtful, and stupid things about hundreds of people, most of whom they have never met, most of them on the verge of losing jobs some of them have held for one or two decades (the Russians) or being uprooted again and sent to another posting after getting settled in Russia (the actual US diplomats)?

What have they done to deserve your wrath?

Nothing.

Which means, at least, that the minimum of solidarity you could have shown them as they go through something that will cause many of them and their family members a great deal of anguish, to put it mildly, was to think harder for a few minutes, find out what was really going on, and figure out who was really to blame for the problem, instead of once again taking an absolutely useless but “emotionally satisfying” punch at the Great Satan, as if you were taking your cues from Putin himself or the late Ayatollah Khomeini, Allah bless his soul.

I realize what I’ve written will be nearly inscrutable to people who have reacted this way. They just want their visas—and they want them now.

So I’ll leave it at this. Now matter how many times you may have been to the US and how much time you’ve spent there, you’ve demonstrated to me you’re not exactly friends of my country.

At the same time, you’ve shown you feel no solidarity for your own real countrymen, who are losing their jobs because a whimsical tyrant and his clique of friends have decided to rule Russia for as long as they can or until they drain it dry, whichever comes first.

Is the US State Department and its Russian national employees to blame for that state of affairs, too?

No.

So, at very least, you also have a very odd, contemptuous attitude toward your own countrymen and your own country.

Hence your signal inability to blame the man who actually caused the “crisis” for causing it.

Not to mention he scares you to death, so it’s always wiser to blame someone else for his regime’s excesses. It’s a lot safer to verbally roast the State Department, Kirill Serebrennikov, Kirill Serebrennikov’s accountant, and so on, for the “stupid mistakes” they made.

Anyone smarter than they are wouldn’t have done the stupid things they did, and we know you’re all much smarter than the State Department, Kirill Serebrennikov, his accountant, and all the other, now nearly countless victims of the eighteen-year-old Putinist tyranny. TRR

Photo by the Russian Reader

Less than Perfect: Petersburg’s Perfect Cup Chain Closes

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The marquee of an Ideal Cup coffee house in the late 1990s or early 2000s. Photo courtesy of The Village Petersburg

Petersburg’s Oldest Chain of Coffee Houses Closes 
Olga Zarubina
RBC
July 25, 2017

 

The Perfect Cup, Petersburg’s oldest coffee house chain, has closed its last outlet, on Kamennoostrovsky Avenue. According to the sign on the door, the premises are undergoing repairs.

RBC Petersburg has learned that a coffee house in the Coffeeshop Company chain will open in its place once renovations have been completed. A Coffeeshop Company spokesman told us the opening was scheduled for September 2017.

We were unable to contact a spokesperson for The Perfect Cup. The company’s website is down. The chain’s page on the VK social network has not been updated since July 10, 2017.

The Perfect Cup (Idealnaya Chashka) coffee house chain was founded in Petersburg and modeled after the US chain Starbucks. In 2005, Scandinavian investment fund Trigon Capital bought 85% of the shares of Idealnaya Chashka, Ltd., from company founder Anna Matveyeva, but in 2011 the shares were returned to their original owner. In 2012, the chained numbered twelve outlets, but later it was reduced to three.

RBC Petersburg had previously written that The Ideal Cup changed owners in the spring of 2016. The new owners were three private investors, including Yevgeny Mikhiyenko, manager of Travelers Coffee LLC.

According to Novosibirsk news agency NGS.Novosti, the purchase cost the investors between three and four million rubles, since one of the terms of the deal was an obligation to pay off The Perfect Cup’s debts within two years. The debts exceeded the amount paid for the company by several times.

However, The Perfect Cup’s problems did not end there. In 2016, Idealnaya Chashka, Ltd. was a defendant in eleven lawsuits, totaling 6.7 million rubles. In February 2017, a bankruptcy suit against The Perfect Cup chain was filed in commercial court. The suit was never heard.

Translated by the Russian Reader. Thanks to Dmitri Evmenov for the heads-up