Is the country threatened by a wave of personal bankruptcies?
The credit debt of Russians has updated the record low, reaching 11.9% of the population’s disposable income. Earlier this year, the indicator stood at 11.7%, announced the Bank of Russia. Over the year of the pandemic and corona crisis, the indebtedness of the citizens has increased by 1 percentage point (pp), mainly thanks to unsecured consumer loans. In another article for the newspaper, Realnoe Vremya columnist, long-time banking economist Artur Safiulin, explained whether a debt bubble in the personal credit market is threatening Russia.
The credit indebtedness of the Russians has reached a record high. Are we threatened by a wave of personal bankruptcies?
The proportion of Russians who have loans from four or more banks at the same time doubled between November 2014 and November 2019. The number of these borrowers was 6%. Another 23.3% had loans with two banks and 9.1% with three. However, the statistics do not include Sberbank customers.
A sustained decline in the population’s income (since 2014) and rapid growth in lending resulted in an enormous debt burden. Furthermore, the pandemic didn’t stop people either – people continued to actively borrow during the crisis and didn’t really think about how to repay them.
In April 2021, we saw an all-time debt record of 11.7%, up 0.8% in the last year alone. The number of loans increased by 13% over the course of the year, while real incomes fell by 3.5%. They are also official figures. I think real incomes have fallen lower (by 10-15%) because the thriving gray labor market is nowhere to be found.
The mortgage, particularly the state preference program, generated strong growth. In second place is unsecured lending. The credit policy of banks and microfinance institutions made it possible to lend money to customers, 80% of whose income is used to repay debt. Let me remind you that 50% in this case is a well thought out policy. This shows how much financial organizations have softened their requirements in recent years. As of April 2021, the average overdue debt increased by a third to 138,000 rubles. The share of overdue loans in total lending remains stable at 4.7% (according to the Central Bank of Russia), but the amount of this debt has already reached one trillion rubles.
As a result, by the fall of 2020, about 3 million people made such applications, and the banks changed the repayment terms on 1.79 million loans for about 807 billion rubles. 25% of people did not manage to return to the repayment plan in the end – it is about 201 billion rubles in bad debt, the fate of which is not decided in the banks.
There is already talk of the so-called debt bubble on the credit market, which indicates economic risks and social tensions in society. The debt of Russian families as a percentage of GDP rose from 15.6% in 2016 to 21.2% in 2020. One civilized way to empty the bladder globally is through bankruptcy. We have it too, and simplified procedures have been introduced even for amounts under 500,000 rubles without going to the arbitration tribunal at the place of residence. An out of court process has a number of difficulties that do not allow borrowers to go through it quickly and effectively. One of the prerequisites is the repayment of debts, which is almost impossible due to the peculiarities of the work of the Federal Court of Justice. In other words, an instrument seems to be given, but then it’s up to you to sort it out.
Overall, the number of bankruptcies with the simplified system is low. While a standard procedure provides for paying for the services of a lawyer (about 100-120,000 rubles), a financial manager (25,000 rubles), additional costs (for publication, mail, sale of real estate at auctions). One should have 150-170,000 rubles to go through the standard procedure. People stuck in debt just can’t afford such sums of money. It turns out to be a vicious circle. I am not surprised if banks are about to launch a new product – “Cash advance to settle bankruptcy proceedings”. Act out.
situation in the Tatarstan
The situation with overdue debts in Tatarstan is generally not bad: compared to the rest of the country, the republic ranks 14ththe for overdue debts.
In 2020, the share reached 3.47% of the total number of loans and increased by 0.2%, which in itself is not critical. The amount of debt per working resident of the republic is somewhat worrying: it rose to 269,000 rubles, which is 16% per year. These are the average figures in all of Russia: overdue debt is 4.38%, the annual increase is 0.3%, the debt per citizen is 265,000 rubles.
If we talk about the volume of the retail portfolio of banks in Tatarstan of around 500 billion rubles, we have 17 billion rubles of potentially bad debts. The number in itself is enormous. It’s another question of how much of this some will default, but still.
The loan depth (number of borrowers compared to the population) is 30%. Here the republic is in the top 10 of the country: the Republic of Tuva has the highest indicator at 38.4%, while Ingushetia has the lowest indicator at 7.8%.
The debt burden (the ratio of the average debt per borrower in a region on the reporting date to the average income of a region in the last four quarters) is 14%. Here, too, it is close to the national average. The Republic of Sakha-Yakutia leads with 33.3%, the Republic of Ossetia-Alania with 6.8% holds the smallest indicator.
What about the future?
Unsurprisingly, given such impressive numbers in all regions, the Russian central bank decided to cool the credit market as much as possible. New restrictions – the so-called maximum amounts for some loans – come into effect. From July 1, 2021, the risk-benefit ratio for unsecured consumer credit will increase.
It is offered to use uniform methods of calculating the individual creditworthiness of natural persons – now the rating may even deteriorate if there is an overdue claim of more than 90 days from 500 rubles.
In fact, both banks and borrowers alike take step-through measures: if your rating does not allow you to take out another loan for the slightest mistake.
I think it would make perfect sense to provide financial education to citizens – not just the older generation, but schoolchildren and students as well. Perhaps financial education courses should be introduced because credit history is created at an early age now. Both a 15 year old school kid and a 60 year old retiree should understand the definition and amount of optimal debt.
The easiest way to solve the problem of the debt burden is to urgently stimulate economic growth and secure new sources of real income for the population. Income growth of 3% is forecast for 2021. Given the fall of 2020, there is nothing interesting and new about this number.
The economy is stagnating, there is little hope for the commodity super cycle that will bring about an increase in commodity prices, we are already seeing a gradual increase in oil prices. Hopefully, after replenishing the budget thanks to the mineral extraction tax, the government will go into the market with public contracts and public subsidy programs. As I have repeatedly written in my articles, the “market hand” and monetarism as such do not work in Russia. The old good budgetary incentives are believed to be the only force that can cope with economic decline.
By Artur Safiulin
The author’s opinion may not coincide with the position of Realnoe Vremya’s editorial.