‘The population beyond MKAD suffers from the crisis more than Muscovites’
Indicators of personal bankruptcies in regions are too high compared to Moscow and average digits across Russia
Almost 300,000 Russians have suffered from a financial collapse since the law on bankruptcy of natural persons came to force five years ago. Moreover, the last year of the pandemic, as Realnoe Vremya has calculated, broke all previous records, especially in regions. For instance, Tatarstan even outstripped Moscow with its number of bankrupt citizens: if in the capital the number of debtors was 59 people per 100,000, here, it is 83 (!). The rise compared to 2019 in the republic is 89%, across Russia on average — 72%. However, analysts think that not only the coronacrisis but also the opportunity of getting rid of the unbearable burden of debts provoked such an upsurge, while the country’s banking system has enough safety margin to help natural persons.
90% more Tatarstan bankrupts
A rapid growth in citizens’ bankruptcies continued in Russia last year. As the law on natural persons’ financial insolvency came to force in October 2015, we can consider the year 2016 as the starting point. According to the United Federal Registry of Information on Bankruptcy, there was an annual rise of the number of petitions in Russia during the next three year: by 52%, 47% and 56,8% respectively. The last year broke all these records: the growth of bankruptcies totalled 72,6%.
The number of citizens (including sole traders) who were recognised bankrupts in 2020 exceeded 119,000. In the last more than five years of existence of the procedure of natural persons’ bankruptcy in Russia, over 282,000 people have submitted petitions for financial insolvency. In the country in general, there are 81 bankrupts among natural persons and sole traders per 100,000 people, Fedresource says. However, the state of affairs in regions is different. So in Moscow, the number was 7,461 last year (59 people per 100,000). There are few Russian regions that showed numbers below Moscow. In most of them, natural persons became bankrupts quite actively in 2020.
The numbers of bankruptcies in Volga regions and their neighbours are off the charts: in Samara (159 per 100,000), Volgograd (140), Saratov (140), Ulyanovsk (152), Penza (161), Vologda (140) and Kalmykiya (149). So Tatarstan (83) doesn’t yet have the worse number in the region — residents of the republic submitted 3,238 petitions for financial insolvency.
During the first two years, the number in the republic rose by 45% and 43,6%. Then Tatarstan’s statistics significantly went ahead of the general Russian numbers. The growth in 2019 was almost 72% compared to 2018. While last year, bankruptcies in the republic skyrocketed by 89% compared to 2019.
As a rule, citizens initiate their own bankruptcy themselves: in 94,5% cases in 2020 (90,7% in 2019). The share of bankruptcy creditors as applicants dropped from 7,5% to 4,6%, Russia’s Federal Tax Service reduced from 1,7% to 1,0%.
More victims of credits beyond MKAD
If the general debt is distributed to all the population in Russia, it will turn out low, specialists draw out attention.
Analysts can’t say accurately loans of what organisations, microfinance institutions or banks, the majority of debtors suffer from.
“Almost everybody who goes through the procedure of bankruptcy has debts to microfinance organisations. The logic is simple here. When a person can’t pay for a loan, he takes out other loans to repay the first one. At some point, banks stop granting loans, then the debtor turns to a microfinance institution,” trustee in bankruptcy Anvar Aynutdinov explains to our newspaper.
He notes that consumer loans prevail in the pattern of overdue debts. Their amount is, as a rule, from 500,000 rubles to millions of rubles. According to statistics, 70-80% of bankruptcy procedures end without selling property — “there is simply nothing to sold”, the trustee in bankruptcy stressed.
Among rare long procedures of citizens, Naberezhny put an example of beneficiaries of companies in the bankruptcy case of Alexey Pleshchyov (Energomash industrial group) where around 51 billion rubles were claimed. In the case of Igor Mavlyanov (Yashma), the debt reached 32bn rubles.
Extrajudicial bankruptcy is being adjusted
Andrey Naberezhny reminded that it became possible recently to write off debts less than 500,000 rubles in a simplified way. During the crisis, the state took measures to stimulate consumers’ bankruptcy by creating an additional procedure without a trial, the head of Fedresource Alexey Yukhnin.
From 1 September to 31 December last year, Russians submitted over 6,400 petitions for extrajudicial bankruptcy. However, Multi-Functional Centres published 1,840 messages about such procedures on Fedresource, 28,8% of all petitions. More than 4,500 citizens returned their petitions. However, the share of procedures anyway grew from 20,5% in September to 41,4% in December.
The mechanism of extrajudicial bankruptcy of natural persons is just 4 months old, it is being adjusted, Vice Minister of Economic Development of Russia Ilya Torosov claimed on 20 January. He said that regions were testing the new system, monitoring extrajudicial bankruptcy, considering additional tools to inform the population about this opportunity.
“There are more trials today because citizens haven’t yet tried the new opportunities. I think extrajudicial bankruptcy will just gain in popularity with time as it happens to bankruptcy trials,” Andrey Naberezhny is sure.
Coronacrisis just added fuel to growing numbers
Experts don’t think the current rise unexpected and note several reasons for it.
“The growth of the number of bankruptcy petitions during the crisis and epidemic isn’t surprising. Real incomes of the population are reducing, unemployment is growing. During the crisis, people are trying to save the consumption level by replacing shortfalls in incomes with loans,” Maxim Osadchy says. “However, loans with the highest rates, unsecured consumer loans, credit cards taken out by low-income population are the most dangerous loans. The debt burden on this class of the population is high enough, debt expenses often are bigger than half of the citizens’ incomes, the debt load becomes unbearable.”
The situation gets worse because during the crisis people are attracted to a preferential mortgage with low interest. Does the interest rate matter if a person lost his job and can’t repay it? The rise in prices also played a role in the grown number of bankruptcies, though a relatively small one.
The head of CBF’s Analytic Department reminded us about loan holidays that he thinks softened the situation, but many borrowers didn’t manage to take advantage of it due to quite strict restrictions.
Consumer bankruptcy unlike corporate has a rehabilitating meaning, financiers assure. As Vice Minister of Economic Development of Russia Ilya Torosov noted, the current law frees citizens from “huge debts, has a social importance, give those who are in a difficult financial situation an opportunity to ‘reset’”. More people learn about this procedure every month, the head of the agency noted.
Talking about the reasons for the rise in bankruptcies apart from objective factors, the coronavirus pandemic and suspension of many ways to make money, Andrey Naberezhny singles out another one. He says that “the generally normal development of natural persons’ bankruptcy, the fact that people learn about this opportunity” leads to good results.
“These percentages are high because the institution of natural persons’ bankruptcy is developing. There is a lot of information, they are told how to do it. There is a market of companies and lawyers who provide such services,” Andrey Naberezhny stressed.
“As for those cases we had in 2020, people mainly complained about the loss of a job or a fall in incomes, this is why they couldn’t repay debts. The coronacrisis only worsened the tendency, but the numbers would anyway go up. The general volume of bankruptcy procedures itself hasn’t reached the top from an economic point of view. The number of people who can go through the procedure of bankruptcy is measured in less than a million people or even more, by different estimates. Due to the low base of bankruptcies of natural persons, their number will be growing at an accelerated pace for several years. I think that this number won’t grow after hitting the bar of 250,000-300,000 people a year,” Anvar Aynutdinov explained.
Consumer bankruptcy is a drop in the ocean for banks
Specialists in the financial sphere think that the statistics on natural persons’ bankruptcies aren’t dramatic for banks themselves.
“These numbers aren’t critical for the banking system of the country at the moment. What is 100,000 bankrupts for Russia with 146 million people? A drop in the ocean. But we will keep in mind that little strokes fell great oaks,” Maxim Osadchy replied.
“Clearly, the more people go bankrupt, the more losses banks have. But at the same time, it is a normal process, and the bank takes it into account, including in its strategy, estimates the risks that potential borrowers may not carry the burden. We cannot yet say that mainly natural persons’ debt is big. The number of procedures with huge debts of natural persons isn’t big — primarily former beneficiaries of a business have them. While in general the institution of natural persons’ bankruptcy works for ordinary citizens who didn’t manage to repay a usual loan,” Andrey Naberezhny says.
The situation mainly depends on a bank’s portfolio, Anvar Aynutdinov thinks. He put an example of the mortgage as the “cheapest debt”, which doesn’t, as a rule, exceed 1% of the total portfolio of the bank because for many people “the flat issue is very critical”. As for unsecured loans, banks have completely different numbers, the trustee in bankruptcy explains.
“It can be 2-3% in banks with ‘good’ portfolios, such loans in banks with more ‘complex’ portfolios can reach 10%, it is more or less fine for them, creditors level this amount thanks to higher interest rates. They don’t lose, the system works in such a way that banks keep money for ‘bad’ loans’, this is why if this debt is written off, the money they planned for it is used,” Aynutdinov says.
The trustee in bankruptcy thinks that the inactivity of banks in the procedures of consumer bankruptcy confirms once again that writing off natural persons’ loans is not big losses for financial institutions that often cede such debts to collectors.
“We will draw a parallel: the USA is a country that has had legislation on bankruptcy of natural persons for long. These numbers vary from 350,000 to 500,000 bankrupts a year. However, more people live in the states. If we are talking about the current situation in Russia, we have 54 million people who have a loan. 100,000 people go bankrupt a year, for instance. Even if 200,000-300,000 people go bankrupt a year, this won’t be critical. A digit over a million people a year will be critical for the banking system,” Aynutdinov thinks.