Evgeny Bogachev: “Soviet people simply did not understand why to take out a loan. There was stability”
The patriarch of the banking system of Tatarstan — about the «anniversary» of the Russian consumer credit, the nuances of Soviet loans and the disastrous consequences of available paid money
Consumer lending in Russia has turned 60. On 12 August 1959, the Council of Ministers of the USSR issued resolution No. 915 “On the sale of durable goods to workers and employees on credit” in order to “expand sales” and “create the greater amenities for citizens”. About how the structure and goals of consumer lending have changed over the years, who gave this service a second life and what pitfalls await bank customers today — read in the interview of Realnoe Vremya with Evgeny Bogachev, the chief banker of the republic of the past decades, former head of the National Bank of the Republic of Tatarstan, and now the president of basketball UNICS.
“A loan? Easy!”
Mr Bogachev, 60 years ago, in the country which had barely recovered from the destruction of the war, the citizens began to take out loans for the purchase of goods. Did that even make sense?
In 1959, I was a first-year student of the Kazan National Research Technical University (KAI) and I definitely did not take out credits. And I wasn't interested in finance. Thus it is difficult for me to say something about this. Well, a decade later, I remember this well, consumer loans were available to almost everyone. It was east to take out a loan — right in the stores — it was enough to pay the first instalment of 50 rubles or 25% of the value of the good.
But 50 rubles then were a significant amount, it turns out, not everyone could take out a loan?
No, in fact, workers at many enterprises earned very well. At the end of 1969, I was appointed the deputy minister of consumer services of the TASSR — the position required to be well informed, including about the income of the population. So, the minimum wage for most workers was at the level of 120-140 rubles. This is about sewers, and they did not earn much. The workers at the aviation plant received from 500 to 1,000 rubles, milkmaids and machine operators in the village also earned well. Many could afford to pay 50 rubles for a big purchase.
Why loan is needed if people do have money?
That is, at that time there were all the conditions for a credit boom. Did it happen?
I wouldn't say that. The point is that the Soviet people, accustomed to living on a salary, just did not understand why to take out a loan. There was stability — they just could save some money and buy. Taking out a loan meant going into debt. Though then the interest rate was 2-3 per cent — just ludicrous.
Soviet people, accustomed to living on a salary, just did not understand why take out a loan. There was stability — they just could save some money and buy. Taking out a loan meant going into debt
What happened to the lending in the mid-1980s, in the early 90s?
Nothing — there were no goods. And lending did not develop. The consumer lending market was revived by Russian Standard Bank. But then there was a lot of imposed services. Not ready to this citizens then were horrified: they were given a credit card, something in the contract was prescribed in small print, but they did not read, signed, and then it turned out that the use of it cost a fortune.
And you can’t accuse anybody, it is necessary to read that you sign…
Yes, it is. And remember that there is no free or cheap money. Therefore, I myself today — not a supporter of active use of loans. You can take out them, of course, but only after calculating everything well.
The consumer lending market was revived by Russian Standard Bank. But then there was a lot of imposed services. Not ready to this citizens then were horrified: they were given a credit card, something in the contract was prescribed in small print, but they did not read, signed, and then it turned out that the use of it cost a fortune
When loan is equal to suicide
Nevertheless, very few people aren't credited today!
Yes, because young people today want to have everything and immediately. Before aged 25, I had only a bike, and it was enough for me until it was stolen from me (laughs). Today, a rare student does not have a foreign car. And they take out a loan not on themselves — but on their mother's passport. Or father’s, and then the parents have to repay it for many years. I think this is wrong. The borrower should count on himself or herself in repaying a loan!
But what if the parents are willing to help?
Well, I will give an example a little from another area, from the history of not consumer but mortgage lending. In the West, in the US, it is normally and routinely to live in credit. There, to stimulate the development of the construction industry in the ‘90s, mortgage loans were very cheap — a 2-storey house cost $30,000. There was a mortgage boom, the development of construction began to lag behind the demand, the cost of housing has increased many times, and people who took out a mortgage began to go bankrupt. Someone lost their job, someone got sick. But in the mortgage the worst — no interest, but the huge principal of the loan that must be repaid. In the US, the laws are such that after death the person frees his or her family of debt. Well, then followed a wave of suicides...
In mortgage, the worst is not interest, but the huge principal of the loan that must be repaid. In the US, the laws are such that after death the person frees his or her family of debt. Well, then followed a wave of suicides...
First forecast, loan after
You mean we're in danger of something like this?
No, but 7-10 years ago, the luxury housing cost 30,000-35,000 rubles per square metre, and how much is it today? 100,000. And there are crowds of hoodwinked investors.
That is, today it is better not to take loans without necessity?
I am a cautious optimist, I believe that if money is really needed — a loan should be taken, but only after calculating your capabilities very well. After forecasting your future, in particular. But it is difficult to do. Here is an example from the banking sector: until recently, if a son or daughter got a job in a bank, the parents were calm and believed that the child was provided for life. But a few years passed, and half of the banks in Russia closed, went bankrupt. Not only ordinary employees — managers lost their jobs. But while they had a job, they all took out preferential loans. The availability of loans leads to disastrous consequences.