Why has consumer credit hit ‘record’ low in Russia?

There is an effect of pent-up demand with the end of the lockdown, and banks want to get their pre-coronavirus indicators back

The United Credit Bureau has published interim data on citizens’ credit amid the coronavirus pandemic. The UCB says that credit has notably cheapened and there is a tendency for growth of the number and amount of credit. However, despite different supporting measures, it is still early to talk about the recovery of pre-coronavirus indicators. Read in Realnoe Vremya’s report how the situation in the market of consumer credit has changed, particularly in Tatarstan, how the portrait of the average borrower has changed and why it is better to get credit after 1 September.

In July, Russians borrowed almost half a trillion rubles

According to the UCB, banks gave Russians 1,2 million consumer credits in July 2020, that’s to say, credits cash totalled 409bn rubles. It is by 11% more in quantity and 10% in amount than in July but by 17% less in number and 2% in amount than in July 2019. Moreover, the total value of credit has turned out to be record low in the last years — 16,1% a year.

“The number of credit in cash hasn’t bounced back to last year’s numbers yet. Moreover, the recovery of the number of credit is lower than the amount of money given to citizens,” Director General of the UCB Artur Aleksandrovich commented in a press release sent out by the organisation. “This means that now banks are giving credit to primarily the most reliable borrowers with a high individual credit rating, but the amounts are bigger, which allows them to lower rates. Undoubtedly, the total value of the credit has also been a record low as a result of the next reduction of the key rate by the Bank of Russia.”

Catch up and overtake Moscow

The biggest fall in the number of credit in cash was seen in April — 665,000, minus 54% against April 2019. The sharpest decline in the number of credit was also in April compared to the previous month in 2020, minus 55%. Both indicators went up in May, while a record 36% growth compared to the previous month in 2020 was noted in June (1,108), while in July 2020 it slowed down to 11% (1,229). The biggest fall in amount of credit was in April as well: compared to April 2019, by 50% (220,1bn rubles against 438,3bn in total), by 55% compared to May 2020 (484,1bn were given in May).

While the average credit amount steadily increased since January 2020 and reached the peak in June 2020 — 335,000 rubles with last year’s average number of 293,000 rubles.

The average credit term increased by more than a year — from 38 months in 2019 to 44 in June and July 2020. And the interest rate that reached the summit of 23,8% in the last five years in January 2016 fell by nearly 1,5 times to 16,1% by July 2020.

Among Russian regions, Tatarstan turned out in line with Moscow in amount of credit given in July 2020 (compared to July 2019) — minus 13%, and as for the decrease in the number of credit given it outstripped the Russian capital (-35% and -29% respectively).

“It is an effect of pent-up demand”

“The coronacrisis helped cool down the market of unsecured consumer credit. The attenuation of the crisis warmed the market up again,” says head of CFB bank’s analytic department Maksim Osadchy. “The effect of pent-up demand for credit has been demonstrated.”

Osadchy thinks that the market hasn’t fully recovered, and the epidemic and the economic crisis that led to a reduction in solvent demand for credit because of a rise in unemployment and decrease in the population’s disposable income are the reason for it:

The expert thinks that the market of unsecured consumer credit will be more vivid after 1 September — the Central Bank’s concessions designed to activate this market will come in force then. The resumption of air travel and opening of borders with some countries, for instance, Turkey — people are taking out loans more actively to pay for a holiday — help the market warm up.

“However, the market of unsecured consumer credit remains quite weak,” Maksim Osadchy thinks. “Banks will be careful because this segment is like a minefield, it is a riskier type of consumer credit that is characterised, as a rule, for the highest deferred payment share. For instance, Setelem bank turned out second in losses in the first half of 2020 among Russian banks that aren’t in rehabilitation. The bank specialising in unsecured consumer credit is Sberbank’s subsidiary. Sberbank’s subsidiary’s loss totalled 2,9bn rubles in the first half.”

“There will be more applications and fewer approvals”

“As for the situation in the country in general, of course, the fastest recovery pace is in natural persons’ mortgages, though the segment of unsecured credit in cash has also shown good recovery dynamics,” says Director General of BusinessDrom analytic agency Pavel Samiyev. “It goes without saying that, on the one hand, this owes to pent-up demand everywhere and with the reduction in the population’s income the demand for consumer credit has been bigger. This tendency always manifests itself when there are some general economic problems and pressure on the population’s income.”

But this tendency, Samiyev thinks, is restrained because in such conditions banks start to tighten their credit policy — requirements for borrowers, especially those whose financial state has worsened:

“It is quite a banal story, but now it isn’t as simple as it was during the previous crises because there is also a general state standpoint on credit holiday and restructuring. And a lot of borrows whose financial well-being isn’t very good can restructure and prolong their credit, many of them did this during the quarantine. Banks are often tolerant of them, offer their restructuring programmes. But this doesn’t mean that such borrowers will get new credit. And this is kind of potential problem of borrowers — those with a worse financial state are blacklisted by banks.”

Samiyev predicts that “we will consequently see some reduction in the dynamics of recovery growth in unsecured credit”:

“This surge won’t be so prominent like now, now we see a short-term effect. Mortgages will be growing for some time, but then its growth will depend on the dynamics of the population’s income. And, of course, the effect of credit holiday and restructuring will run out because banks won’t be consequently ready to make such concessions to borrowers. And the last deterrent: the situation of those borrowers whose financial state hasn’t worsened will be very different from the one of those who have had some losses. The latter will find it very hard to get new credit. So the number of credit applications will probably even grow because people will need them, but the share of approvals that has hit a record low now will be reducing.”

By Inna Serova

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