Is there a ''loan noose'' threat for Russians?

Russian citizens are tired of saving and begin to consume more — with the help of banks and MFOs

After four years of real incomes falling, Russians have become tired of saving and suddenly started buying more goods. Apparently, consumer demand is fueled by loans from banks and microfinance organisations. Experts assess threats to the economy: some consider the trend alarming and warn about future problems, others say that there is nothing to be afraid of. Read more in the material of Realnoe Vremya.

Less money, but not purchases

In January, at the Gaidar forum, head of the ministry of economic development Maksim Oreshkin spoke about the future economic growth in Russia. According to the minister, it will be stronger than last year — ''that's for sure.'' Oreshkin believes that the drivers for the economy will be several factors, including a revival of consumer demand.

Rosstat recorded the signs of such recovery already in April 2017, when retail turnover showed an increase of 0,4% after two years of recession. The growth did not stop in the following months as well, as a result of 11 months retail trade turnover increased by 1% in annual terms.

Oreshkin believes that the drivers for the economy will be several factors, including the revival of consumer demand. Photo:

The research holding Romir has recently stated: ''Big savings has come to an end.'' The surveys conducted among 1,500 citizens in all parts of the country showed that last year people did not limit and do not plan to limit themselves significantly in large purchases. For many large items, costs were higher than planned in early 2017 — except for apartments, furniture and repairs. ''The Russians are gradually returning to normal, pre-crisis consumption style,'' Romir concluded.

Experts argue about whether it is good or bad. Many of them speak about low quality of consumer demand, assuming that in recent time it has been provided not by earnings and savings, but credits. Meanwhile, some mass media publications actively write about ''a credit noose around the neck of Russians citizens.''

Skepticism is caused by the fact that the demand for goods is growing against the backdrop of a protracted reduction in real incomes of the population (RDN), which Russia has not been able to overcome for four years in a row. In previous years, falling real incomes dragged down the sphere of retail trade with itself: in 2015, it sank by 10%, in 2016 — by 5,2%; last year, the RDN decreased by 1,7%, but a decline in retail turnover did not occur.

In February, head of the Central Bank of Russia Elvira Nabiullina said that the regulator may take measures to avoid overheating in consumer lending. ''The recovery of consumer lending is also good, but there should be no overheating because consumer lending should grow at a rate comparable to a growth of incomes of the population and comparable to loans to the real sector of the economy,'' she said.

A threat or not?

''This January, the bankers faced with an atypical growth of demand for loans for the purchase of goods in trading networks. It is on these borrowed funds the Russians bought up electronics and home appliances at the beginning of the year,'' says Olga Lebedinskaya, an economist and Associate Professor at Statistics Department of the Plekhanov Russian University of Economics. According to her, the sociological research shows that fewer and fewer citizens have the opportunity to save money. Apparently, this is the reason that not very large purchases are made on credit money,'' Lebedinskaya believes.

Sergey Khestanov, an economist, Associate Professor at Ranepa, notes that consumer behaviour differs depending on social situation and income level: ''People who more or less earn prefer to save, and the other part of Russians — to spend on credit. Maybe they expect deterioration in their financial situation and want to purchase something now.''

Khestanov says that consumption, fueled by banks, is unlikely to lead to something good: ''The minister of economic development is always optimistic simply because of his position. Any phenomena are interpreted by him in favour of economic growth. If we look without rose-coloured glasses, it's quite a worrying trend.'' If this trend is fixed, then in 1-2 years we are likely to see an increase in the share of problem loans with all the ensuing consequences, warns Khestanov (however, this risk has also been recognized by Oreshkin). Although there is no ''special drama here'' as banks have prepared for this and created the necessary reserves.

In 1-2 years, we are likely to see an increase in the share of problem loans with all the ensuing consequences, Khestanov warns. Photo:

Natalia Orlova, the chief economist at Alfa-Bank, believes that the problem is being exaggerated. First, a decrease in RDN is not so obvious: ''The question is how bad the situation is with incomes.'' According to Orlova, about 70% of the RDN are formed by salaries, and real wages are growing. It appears that it is the informal part of income is declining, which is being measured by statistical assessments.

Second, during the last two years the population was paying back the loans to banks, and only recently the total loan portfolio recovered to the level of 2015. ''If the situation with wages deteriorates and against this background the population borrows even more actively — then there may be problems. Of course, it is worth bearing in mind, but now it is only a potential risk, not a threat,'' Orlova says.

''My savings are depreciating''

According to Romir, last year the Russians surpassed their own plans by spending on clothing, medical services, entertainment, education, car repairs and smartphones. At the end of the year, spendings on household appliances slightly decreased. According to Olga Lebedinskaya, small, not very expensive household appliances and electronics were sold normally, a decline was in the segment of major appliances.

Studies show that Russians are again beginning to motivate purchases that ''later it will be more expensive'' or that ''my savings are depreciating'', Lebedinskaya says. ''The growing demand for household appliances and various electronic equipment is always recorded when there begin problems with the ruble. As soon as there is the slightest suspicion that the ruble falls against the dollar, people immediately try to quickly put them in the kind of goods that can then serve a kind of ''savings book.'' The immovable property is for those who have a lot of money, home appliances and electronic equipment — for those who have less money. The same situation was in December 2014, when the ruble fell sharply.''

By Artyom Malyutin