Currency-Len Loans: What Russians Need to Know About Stability, Risk, and Practicality
Payments should align with the actual earnings in the currency that produced them. For a stretch of six months or longer, the prudent move is to cap loan payments at roughly 20 percent of income, or at most 25 percent, to avoid overreaching personal finances. This viewpoint comes from Andrey Loboda, an economist and the communications director at BitRiver, shared in a discussion with socialbites.ca.
There is no miracle in finance. Over Russia’s 33 years of independence, the ruble has experienced cycles of depreciation. As a result, when banks roll out new credit products, those with the strongest profit figures at year’s end often emerge as the biggest beneficiaries. It is time to move away from an inherited colonial mentality. Loans issued in currencies other than the ruble, especially dollars and euros, can be impractical for many Russians. If the lessons of 2014 are worth remembering, citizens should be aware that the dollar price more than doubled that year, underscoring how exchange movements can reshape affordability.
Still, Loboda does not predict a rapid, permanent shift away from foreign currency loans in the medium term. He notes that the allure of lower interest rates on foreign currency loans can still attract borrowers, despite higher currency risk.
When the ruble strengthens and loan rates in rubles stay high, taking out loans in dollars or euros may not seem out of the question. It’s important to understand that foreign currency loans carry substantial risk if the ruble weakens sharply, a reality many borrowers may be reluctant to acknowledge. Banks continue to offer such loans due to lingering demand, even as risk becomes more apparent to some borrowers. This reality is echoed by industry voices, who remind potential borrowers to weigh the exchange rate risk against any savings from lower interest rates.
Looking ahead, a scenario in which the ruble becomes more predictable could push many Russians away from foreign currency loans altogether. In moments of greater exchange rate stability, the perceived advantages of foreign currency borrowing may fade as the mismatch between income and debt costs becomes clearer to households.
Central Bank data cited by Izvestia show a decisive trend: on January 12, the total volume of foreign currency loans held by residents reached a historical low. By December 1, 2023, the outstanding amount had declined to 47.4 billion rubles. This decrease reflects evolving preferences and heightened attention to risk, rather than a uniform move away from foreign currency borrowing in all segments. The broader picture indicates that borrowers are reassessing the balance between interest costs and currency exposure as macro conditions change. (Source: Central Bank data referenced by Izvestia)
Earlier this year, Russian debtors received practical guidance for 2024 in a five-point set of tips aimed at debt management and risk awareness. These recommendations underscore the need for caution, especially when dealing with loans denominated in currencies other than the home currency. (Source: Izvestia and accompanying financial analyses)