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

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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.

Life on the Installment Plan

“Sovcombank. Are you a pensioner? Your loan is approved!”

Half of Russians in Arrears Take Out New Loans to Repay Old Loans
Takie Dela
April 18, 2017

In 2016, according to the statistics of the United Credit Bureau (UCB), 45 million Russians with current loans took new loans from banks. More than half of these people intended to use the money to pay off outstanding loans.

The bureau’s analysis showed that 53% of borrowers took a new cash loan that was used to fully or partly repay existing loans. 27% spent more than half of the new loans to pay their debts.

On average, Russians borrow between 101 and 126 thousand rubles [between 1,650 euros and 2,080 euros, approx.] to repay debts. According to statistics, around half of the borrowers (56%) take the money to repay debts of 50 thousand rubles or less or debts over 500 thousand rubles (47%).

33% of those who take new loans before repaying old loans have a debt of 100 thousand rubles. Nearly a fifth of all borrowers (18%) have three outstanding loans and a total debt of 278 thousand rubles, while every tenth borrower has five or more outstanding loans and a total debt of 575 thousand rubles.

71% of those who have five or more outstanding loans have taken a new loan to repay the interest on the existing debt. 65% of those with four outstanding loans and 60% of those with three outstanding loans have done the same thing. Those who have only one outstanding loan are the least likely (42%) to use a new loan to make interest payments.

“The trend may indicate the growing popularity of loan refinancing programs, which many Russian banks have vigorously brought on line in the past year,” commented UCB’s director general Daniel Zelensky. “Borrowers who took out loans at high interest rates in 2015 naturally have wanted to refinance them on more favorable terms.”

He added that many borrowers have realized that now it is “irrational to service several loans in different banks at the same time.”

In May of last year, the National Credit History Bureau analyzed 3,700,00 Russian creditors and reported that the most indebted Russians were schoolteachers and physicians. Employees of the social sector and education sector spend 33.39% and 33.3%, respectively, of their income paying back loans. The highest ratio of monthly loan payments to income (33.56%) was recorded amongst pharmaceutical and medical workers.

According to UCB’s report, no fewer than 600,000 Russians are currently bankrupt. That is, they owe more than half a million rubles and have not made payments on their debts for three months.

Translation and photograph by the Russian Reader. If you found this article interesting, you might want to read “Kotlas: Russia’s Bankruptcy Capital,” posted here in December 2016.

Kotlas: Russia’s Bankruptcy Capital

A City of Bankrupts
Vladimir Ruvinsky
Kommersant Dengi
November 28, 2016

Kotlas, a district center in Arkhangelsk Region, will be one hundred years old in 2017. During the first half of the twentieth century, it was one of the main transit centers for political prisoners, but nowadays it is the capital of individual bankruptcies. There is no work in the city, which over the past ten years has become a local consumer’s paradise, and every fourth resident is up to their ears in debt.

In 2012, Kotlas resident Tatyana and her entire family, including her husband, daughter, and brother, took out a total of five million rubles in loans from banks. She asked we not reveal her surname, since her husband is unaware their daughter also took out a loan. As Tatyana says, they took out the loans not for themselves, but for a friend.

“I worked for two female entrepreneurs who sold clothing. We had known each other for something like twenty years. We would visit each other’s homes, go to each other’s birthday parties, and attend the weddings of each other’s children,” Tatyana recalls. “One of them, in fact, asked me to take out the loans because otherwise, she said, they would have to borrow at an interest rate of eight percent on the black market.”

Tatyana borrowed 1.7 million rubles at Trust, Tinkoff Bank, Home Credit, and OTP Bank.

“I worked for my friends selling luxury clothing. The turnover was good so I was not particularly afraid,” she explains.

Soon afterwards, her friends persuaded to take out additional loans for them. Her husband, daughter, and brother agreed to do this, borrowing 900,000 rubles, 1.8 million rubles, and 700,000 rubles, respectively. The deal was based on trust. Tatyana’s family handed the loan agreements over to the female entrepreneurs, and they paid back the loans themselves. This went on for two years.

“In 2014, the police came and searched our workplace. It turned out the women had been running something like a pyramid. They had been borrowing money on paper to purchase goods. They had not been buying anything, however, but had been cashing out the loans,” say Tatyana. “That is how we got in trouble, although we had not taken out the loans for ourselves.”

The banks demanded repayment of the loans. At first, Tatyana admits, she felt like hanging herself.

“But that is no solution. A woman I know hung herself over a loan. Someone shot himself. Well, if I hung myself, the debt would have been passed on to my relatives. So I got up and went to work.” Continue reading “Kotlas: Russia’s Bankruptcy Capital”

Nice Work If You Can Get It

Oleg Derispaska
Oleg Deripaska. Photo courtesy of deripaska.com

“I believe that it takes just 100 people to change a country for the better provided that these people are driven professionals capable of creating something new. I am sure that in Russia there are far more than 100 such people, so let’s join forces and work together.”
Oleg Deripaska

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Deripaska’s Company Releases Sales Figures for “Olympic” Apartments
Natalya Derbysheva
RBC
May 27, 2016

sochi-olympic village marina
Mockup of the Sochi Olympic Village’s Coastal Cluster. Photo: Andrei Golovanov and Sergei Kivrin/TASS

Oleg Deripaska’s company RogSibAl has sold 20% of the luxury apartments it built on the Black Sea coast in Sochi for the Winter Olympics. The company believes this is a good result. 

RogSibAl, a subsidiary of Oleg Deripaska’s Basic Element, built 2,700 luxury  apartments on the Black Sea coast for the 2014 Winter Olympics in Sochi. Athletes lived in the apartments during the competition. According to Vnesheconombank, the project’s budget was 25.3 billion rubles, 22.3 billion rubles of which RogSibAl borrowed from Vnesheconombank.

The coastal Olympic Village is now known as the Imereti Resort District. It consists of four quarters, the Coastal Quarter, the Maritime Quarter, the Park Quarter, and the Reserve Quarter. Apartments are available for purchase in all four quarters. The price per square meter ranges from 152,000 rubles to 195,00 rubles [approx. 2,070 euro to 2,650 euros per square meter—TRR].

Since the apartments went on sale in 2013, 20% of them have been sold, a Basic Element spokesman told RBC, meaning that over 500 apartments in all have been sold. Basic Element’s spokesman added that the company had sold 118 apartments from January to May 2016.  The company plans to have sold 350 apartments for a total area of 25,000 square meters on the year.

Basic Element has been renting out the unsold apartments. According to the company’s spokesperson, the rental demand for the 2016 summer season is 97–100%.

The sales figures are worse than what Basic Element had planned in 2011. Igor Yevtushevsky, RogSibAl’s general director, had then told Vedomosti that the company was planning to sell 50% of the apartments before the start of the Olympics, and the other half in 2014–2015.

Basic Element’s spokesman said it would be unfair to compare current sales figures with projections made in 2011.

“The project has undergone big changes,” he explained.

The company cites data from the MACON Realty Group, according to which 387 business- and luxury-class real estate transactions were concluded in Sochi from January to May 2016, meaning that the Imereti District’s share of this business was 23%.

The government has discussed the conditions of restructuring the loans issued by Vnesheconombank for building Olympic sites, RBC’s sources told it earlier this week. A federal official explained that Deripaska’s companies were in the most complicated circumstances in terms of loans, since the demand for apartments was not great.

Sochi Olympic Village. Photo courtesy of Nikita Kulachenkov
Sochi Olympic Village. Photo courtesy of Nikita Kulachenkov

Basic Element has not disclosed the figures of the income from its sales of the properties. Its spokesman did say, however, that all the proceeds were being wholly turned over to Vnesheconombank in repayment of the loan and that RogSibAl had been fulfilling all its obligations to the bank.

Given that sales usually begin at the design and construction stage of a property, 20% sales in the second year after a property has been operation is hardly satisfactory, argues Marina Udachina, director of the Institute for Innovations, Infrastructure and Investments. According to her, the situation is partly due to a slowdown in economic growth and a reduction in the demand for luxury properties.

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Nikita Kulachenkov
Facebook
May 27, 2016

Only 20% of the apartments in the Olympic Village have been sold in two years.

Here is what we wrote about this a month before the Games:

“The site is being built by oligarch Oleg Deripaska, one of the few private investors in the Olympics. Only he is building with public money. Twenty-two of the twenty-five billion rubles in the project’s budget has been secured with a loan from state-owned Vnesheconombank. Derispaska’s company is planning to pay back this money by selling the village as a residential complex after the Games. It will be hard for them to find buyers. A single bed in the village costs as much as a two-room flat in Moscow.”

Of course, the crisis, sanctions, and being “surrounded by enemies” have inevitably led to a drop in demand for fairly pricey holiday apartments. On the other hand, this was offset by the fact that demand was supposed to shift to the domestic market from Greece, Cyprus, Turkey, and other countries where housing had become almost twice as expensive for Russians.

As a result, sales did not take off, which is a pity. I know that after the Games a good person, familiar to a lot of my people on my wall, worked on the project.

We can also add to this news the latest about Sberbank, which after agonizing for a long time has today finally sold the Mountain Carousel ski resort on the installment plan to the former governor and current minister Tkachyov* and his young but quite talented son-in-law. The joke there is that Sberbank invested 25 billion rubles into Mountain Carousel, while Vnesheconombank loaned it 55 billion rubles. Vnesheconombank fiercely resisted the sale, because it is one thing when Sberbank is in hock to you to the tune of 55 billion rubles, and quite another when it is Tkachyov and family. Apparently, Gref is tougher and stronger than the moribund Vnesheconombank, although it does not make our lives any easier.

Since for some reason business has not been booming at nearly all the former Olympic sites, the government has authorized the repayment of Olympic loans over a period of 25 years at a reduced 5% interest rate. And to keep Vnesheconombank from kicking the bucket altogether, the Finance Ministry will give it another 150 billion rubles straight from our pockets.

I probably do not need to remind you of the total amount that we, the taxpayers of the Russian Federation, paid for the construction of all these “great power” bells and whistles.

P.S. I’m going to do a little populism practice. Anyone in Russia want a twenty-five-year mortgage at five-percent interest? Ask Tkachyov, Potanin, Deripaska, and Vekselberg “how.” )))

Translated by the Russian Reader. Thanks to Alexei Navalny for the heads-up. This post should be read in tandem with my post for May 25, 2016, “The Decline Has Gone Uphill.”

* On August 2, 2012, Tkachyov announced plans to deploy a paramilitary force of Cossacks in Krasnodar Krai, beginning September 2012, as vigilantes to discourage internal immigration by Muslim Russians. In a speech to police, he stated, “What you can’t do, the Cossacks can. We have no other way—we shall stamp it out, instill order; we shall demand paperwork and enforce migration policies.”

Source: Wikipedia, New York Times