The press service of the Central Bank said that as of October 1, the volume of mortgage debt of Russians was 17.1 trillion rubles, for unsecured consumer loans (including credit cards) – 13.6 trillion rubles, for auto loans – 1.5 trillion rubles. Volume of overdue mortgage loans 0.6% This share in the total number of housing loans has decreased by 0.1 point since the beginning of the year. For unsecured loans, it reached the following level: 8.1% (-0.7 percentage points since the beginning of the year) and for vehicle loans – 3.7% (-0.9sp).
What worries the Central Bank
“The quality of personal loan services is still high in 2023. We believe that the share of bad debts is currently low, partly due to the rapid growth of the loan portfolio. The quality of new issues is of greater concern,” the Central Bank press service said.
Half of mortgages from July to September this year were granted with less than 20% down payment, according to the regulator.
“In addition, loans are granted to people with a high debt burden: in the third quarter, borrowers with a debt burden of over 80% accounted for 47% of all mortgages issued and 25% of unsecured consumer loans,” the press service said.
A debt load of 80+ means that more than 80% of the borrower’s income goes towards repaying the loan.
“Such loans have not yet matured, but risks are increasing as the retail portfolio grows much faster than household income. Therefore, we are constantly tightening macroprudential regulations in both the mortgage segment and the unsecured consumer loans segment. We are not currently planning any additional measures to reduce the volume of problem debt; banks need to work independently with problem debts,” commented the press service of the Bank of Russia.
Will the credit bubble inflate?
BitRiver financial analyst Vladislav Antonov did not rule out the emergence of a local credit bubble in Russia in a year or two. This could lead to an increase in loan arrears and defaults, he added.
This means that financial stability problems may arise for Russian banks.
Antonov explained that the emergence of a bubble in the credit market is possible if loan issuance grows significantly faster than the increase in Russians’ incomes. Moreover, such a scenario will occur if credit quality worsens and the Central Bank weakens regulations.
“We can talk about the locality of the problems that are currently emerging. First of all, we are talking about mortgages. When they talk about the credit bubble, they mean only certain parts of the country (including, incidentally, both Moscow and St. Petersburg). It is clear that if the credit bubble bursts, all regions will feel the consequences,” said Associate Professor of the Department of Global Financial Markets and Fintech at the Russian University of Economics, Candidate of Economic Sciences. GV Plekhanova Tatyana Belyanchikova.
The economist said that in the credit bubble scenario, real estate prices will fall in all regions of the country and this will create problems for both banks and the construction industry.
“Individuals account for more than 30 percent of the 100 trillion rubles of debt from companies and citizens in Russia. Compared to the explosive dynamics of recent years and especially months, the credit bubble was already really inflating. But the problem should not be exaggerated: if we compare it with world experience, the debt of the Russian population relative to the country’s GDP is one of the lowest in the world, just over 20%, while the world average is over 60%. ” added Mikhail Zeltser, Candidate of Economic Sciences, stock market expert at BCS World Investments.
At the same time, the expert said that the credit boom in general began to threaten price stability in the Russian economy, and in recent months inflation has increased, real estate, cars, etc. He added that it increased sharply due to purchases of expensive goods such as Of course, he also explained that devaluation also played an important role in increasing inflation, and citizens, seeing the incessant decline in the ruble exchange rate, also tried to protect their savings by buying apartments and cars.
“But the Central Bank is already taking action: it raised the interest rate to 15 percent, tightened macroprudential limits and reduced the possibilities of concessional mortgages. The rate of credit growth gradually began to slow as expensive credit reduced the demand for credit capital. Zeltser noted that the ruble began to strengthen rapidly in the face of the Central Bank’s strict rules and standards for exporters to return their earnings from abroad.
For this reason, the expert stated that the credit bubble will most likely be carefully deflated but will not burst.
Yuri Shedko, Doctor of Economic Sciences, Professor of the Department of State and Municipal Administration at the Financial University affiliated with the Government of the Russian Federation, stated that a credit bubble in Russia is no longer possible.
“While banks will continue to actively lend to the public, borrowers are actively adjusting to loan conditions and prices in the housing market. A bubble scenario is possible in which rapid growth in mortgage lending leads to an increase in overdue debts, the share of high-risk borrowers increases, mortgage securities and bank guarantees lose value, real estate prices fall and the mortgage market collapses. This phenomenon is not currently observed,” explained the expert.
Antonov is confident that strict regulations on high-risk loans must be maintained to prevent the risk of a credit bubble.
“The Central Bank needs to monitor and control the quality of banks’ loan portfolios in order to detect problematic situations early and take appropriate measures. “We also need to encourage the increase in the real income of the population and increase their financial literacy,” he concluded.
Belyanchikova added that in addition to these measures, a change in the macroeconomic situation and the absence of serious non-economic shocks should be expected.