Bank of Russia fighting growing consumer debt

Bank of Russia fighting growing consumer debt

Last year, demand for loans in Russia remained high, as consumer spending was increasing faster than real incomes, while falling interest rates made loans more affordable. Concerns about a consumer debt bubble made the Central Bank introduce stricter lending criteria in the second half of 2019, but the outstanding debt volume still showed double-digit year-end growth.

Russia’s consumer debt is still growing, but the Central Bank’s fight against a debt bubble is starting to have an effect, says The Moscow Times. According to new statistics published by the Russian Federal State Statistics Service last week, the country’s households took on an extra 2,7 trillion rubles ($44 billion) of debt last year. The volume of outstanding consumer loans increased by 18,5% in 2019. As a result, the stock of outstanding consumer debt in Russia reached 17,6 trillion rubles ($280 billion).

However, last year’s annual increase of almost 20% was slower than the figure recorded a year ago due to efforts of Russia’s Central Bank to cool the market with new regulations. Since 1 October, the regulator has introduced a list of measures such as making it more expensive for banks to lend to riskier customers and limiting daily interest rates for ultra-short-term loans. Thus, the final quarter of the year brought a slowdown in borrowing: loans grew by only 1% in December. Besides, the value of overdue loans decreased to 4,3% compared to 5% a year ago indicating that fewer borrowers appear to be getting into repayment issues. Only about a third of applications for unsecured loans were approved last year.

Since 1 October, the Central Bank has limited daily interest rates on ultra-short-term loans. Photo: Gennady Grachev

According to analysts, the Central Bank is working against market conditions, as falling interest rates have made loans more affordable. Given that consumer spending is increasing faster than real incomes, demand for loans in Russia has remained high. Nonetheless, the Central Bank’s efforts seem to be bearing fruit, considers Mikhail Shlemov, a banking analyst at VTB capital. “We think this trend will continue in 2020, with the Central Bank discussing more regulatory tightening and now targeting mortgages, housing and car loans,” he said adding that nominal growth was expected to remain above 10% annually.

Meanwhile, 2019 became the best year in the last half decade for the Russian banking industry, reports bneIntelliNews. Last year, the country’s banks earned collectively a net profit of 1,7 trillion rubles ($27,2 billion). Lenders, which saw profits rise smoothly over the year, are expected to improve their position further in 2020.

By Anna Litvina