‘The pandemic has had an extremely negative impact on the quality of loan portfolios’
Every sixth Russian loan may become overdue by the end of the year
The number of non-performing loans in Russia has increased by 12,5% so far this year amid the economic downturn caused by the COVID-19 pandemic. Nonetheless, even a further increase is unlikely to threaten the stability of the national banking system thanks to accumulated reserves.
The coronavirus pandemic has pushed the number of overdue loans in Russia to a record high, says The Moscow Times citing a new report by Russia’s National Association of Professional Collection Agencies and Equifax credit bureau. Over 12,5 million loans issued by Russian banks and credit providers are currently non-performing, which means the borrower is more than 90 days behind on repayments, and another million is expected to follow by the end of the year, reads the report. Thus, one in every six loans may become overdue. The fastest surge in non-performing loans was registered in Crimea. “The pandemic has had an extremely negative impact on the quality of loan portfolios,” the report reads.
While before the coronavirus pandemic the rapid increase in borrowings, especially unsecured loans, had raised concerns, the crisis has slowed the growth in most forms of loans. Approval rates for credit cards and unsecured loans have dropped significantly. At the same time, a state-supported programme envisaging lower interest rates on mortgages for new apartments and homes has been extremely popular. The government still has to decide whether to extend the programme into 2021 with the Central Bank keeping a close eye on the situation to prevent a potential housing market bubble or rapid acceleration in mortgage debt.
Almost 10% of all outstanding corporate and retail loans worth some six trillion rubles ($77 billion) have been restructured since the start of the pandemic as a result of a government-backed scheme for hard-pressed debtors. The overall loan portfolio of Russian banks added almost 10% in January-August, according to data from Fitch Ratings agency.
Russia’s banking system is considered to be much healthier than during previous economic crises due to a massive clean-up performed by the Central Bank after the 2014-15 crisis. The regulator has recently relaxed the requirements on banks to increase their own cash reserves to cover potential losses. The National Ratings Agency believes that the Russian banking sector needs to keep around 40% of its $75 billion in capital buffers on the balance sheet into 2021. At the moment, banks’ reserves almost cover the entire value of loans restructured throughout the crisis, so even a significant increase in bad debts won’t threaten the stability of the banking system.
Nonetheless, the agency points out that “the financial stability of individual credit institutions during 2021-2022 may come under pressure”, as capital is unevenly distributed. For example, government-backed Sberbank accounts for 35% of all Russian loans and holds almost 47% of the sector’s tier 1 capital.