According to Central Bank data, the number of Russians with three or more loans at the end of the first half of 2023 increased to 11.2 million. According to preliminary data, this figure continued to increase in the second half of the year; The regulator will submit final information in March, the Central Bank press service told socialbites.ca.
“We see that the increase in credit debt has significantly outpaced the growth in household income, leading to an increase in the debt burden of citizens. As of December 1, 2023, the personal loan portfolio grew by 24% on an annual basis. “This is particularly evident in mortgages.” – announced the press service.
According to the Central Bank of Russia, as of December 1 last year, annual growth in mortgages amounted to 35%. The dynamics of consumer loans are also quite high: +16% on an annual basis as of December 1, 2023. Against this background, growth in nominal income per capita was much more modest: +11% in the third quarter of 2023 compared to the same period in 2022.
Will Russians be able to repay their loans?
The Bank of Russia noted that both the number of loans received from a borrower and the debt burden are important:
“A significant portion of debt in banks’ retail portfolio (63% as of October 1, 2023) falls on borrowers who devote more than half of their income to debt service.”
The press service added that if income decreases, these borrowers may have difficulties paying off their loans. However, the press service explained that the quality of mortgage loan services remains high so far – largely due to the increase in household incomes.
BitRiver’s economist and communications director, Andrei Loboda, noted in a conversation with socialbites.ca that Russians have coped with the debt burden so far. The expert explained that the average Russian borrower spends about 40-45% of his income on payments on consumer loans and 60-70% on mortgage payments.
“Despite slower income growth, working Russians also receive income from work, self-employment, investment or random, unstable income. From this perspective, the danger of a “credit bubble” is not very high so far, but this cannot continue indefinitely. And The annual increase in the number of personal bankruptcies is another alarming call,” Loboda noted.
Konstantin Kharchenko, associate professor at the Department of State and Municipal Administration at the Financial University of the Government of the Russian Federation, told socialbites.ca that the situation is not critical at the moment, but a further increase in debt is a negative phenomenon. Not only from an economic point of view, but also from a socio-psychological point of view.
Another trend is taking out a consumer loan to pay the mortgage down payment.
The Central Bank of Russia monitors the share of consumer loans that can be used for a mortgage down payment, including examining such practices as part of supervisory work with banks, the Central Bank press service told socialbites.ca. The press service explained that so far the share of such loans does not exceed 7% of mortgage loans.
According to the regulator, this share has increased by 2 percentage points since 2019 and 3.3 percentage points since 2014.
“If interest rates fall sharply in the future, this share will begin to increase, creating the risk of a credit bubble,” Loboda said.
“Consumer loan to pay the first mortgage payment is not rational, but is a necessary measure for many in the absence of alternative options to improve housing conditions. Accordingly, in order to minimize this practice, it is necessary to develop the rental housing market together with the subsequent right to purchase, individual housing construction, youth housing cooperatives and other similar “mortgage-free” technologies, Kharchenko believes.
According to him, using a consumer loan as a housing down payment contradicts the original understanding of credit.
“This may be justified if it will be profitable to rent out the purchased housing, but this is not a fact. Otherwise, this is justified if the borrower expects to move to a higher-paying job, but in modern conditions this does not happen very often,” the economist concluded.
What are the authorities doing?
The Central Bank expects that restricting the increase in citizens’ debt burden will help limit the issuance of loans to banks. In consumer loans, this is achieved through the use of macroprudential limits (MPL), the regulator’s press service explained (Macroprudential limit – limitation of the share of unsecured loans in the total volume of loans issued by banks or microfinance institutions)Directly restricting the provision of risky loans, including to borrowers who are already overleveraged.
“The limits made it possible to reduce the share of consumer loans in which borrowers’ debt burden is more than 80 percent (when 80% of income is spent on repaying the loan) From 36% in the fourth quarter of 2022 to 25% in the third quarter of 2023. Limits for the fourth quarter of 2023 and the first quarter of 2024 have been significantly tightened. This will further limit the debt burden of borrowers and make the lending structure more balanced,” predicted the press service of the Central Bank of the Russian Federation.
The Bank of Russia does not yet have the opportunity to impose such restrictions on mortgage loans in order to directly limit the share of the most risky loans with their help. Regarding mortgage loans, the Central Bank decided to significantly increase macroprudential buffers (additions to the risk coefficients that the bank must take into account when granting loans: the higher the risk, the greater the additional capital reserve the bank must have to approve loans, making loans less profitable for financial institutions) From October 1, 2023.
“Starting from March 1, 2024, macroprudential premiums for housing loans with high PIT will be increased further.” (debt burden indicator). “We also expect to receive authorization to establish MPL on mortgages starting July 1, 2024,” he said.
The relevant bill was submitted to the State Duma by a group of deputies and senators led by Anatoly Aksakov, chairman of the Duma Committee on Financial Markets. How reported “socialbites.ca” Aksakov himself told that the first reading on this issue could take place in February-March if the Russian government gives feedback.
“Imposing macroprudential limits on risky loans will, on the one hand, limit the provision of such loans, and on the other hand, reduce the capital requirements of banks,” concluded the press service of the Central Bank.
Loboda’s name The best way to cool an overheated credit market is high interest rates. The economist expects a decline in credit demand in Russia in the first quarter of 2024.
“In the future, conditions will likely become even stricter, not only for mortgage borrowers but also for borrowers. “Perhaps in ten years, concessional loan programs will be canceled and receiving a loan will become a sure indicator of income and status in society,” the expert admitted.
Kharchenko added that the debt problem can be solved not by restrictive measures, but by developing the labor market, in particular by increasing the state’s demand for workers with a wide range of qualifications and qualifications. As an option, he came to the conclusion that today it is urgent to develop the Arctic region of the Russian Federation, where a high level of wages should be guaranteed, workers should be allowed to pay credit for one or more “shifts” or work without credit. .