At the start of 2022, Russia saw a record debt burden among its residents. Households allocated 10.6% of their regular income to loan repayments, up from 10.2% in the previous year. In March and April of 2022, the share of consumer loans with the next missed payment rose from 5.3% to 7.5%. The central bank warned that this trend could influence overdue loan growth in the near future. The regulator did not publish the quarterly debt load dynamics for the first quarter of 2022.
How is the debt load calculated?
Debt load is measured using the PTI, a key indicator of indebtedness. It is computed by dividing all of a borrower’s monthly payments by their monthly income. A higher PTI means it is harder to obtain new credit. Banks typically begin rejecting applicants when PTI reaches about 50%. As PTI rises, banks raise their premium risk and the capital adequacy ratio can decline. If the rate falls below 2%, a bank’s license could be at risk.
How is the debt load calculated?
To estimate the population’s debt load, the PTI is used to gauge indebtedness. It is derived by dividing the borrower’s total monthly payments by their monthly income. A higher PTI makes loan approval more difficult. Banks often start turning away borrowers at around 50% PTI. A higher PTI generally leads to a higher premium risk for banks and a lower capital adequacy ratio. If the rate drops under 2%, a bank’s license may be revoked.
“Whether the debt burden will rise depends on two factors: the growth rate of lending and the growth rate of income,” stated the first deputy head of the National Bank, Ksenia Yudaeva, during a briefing.
The Russian Banks Association believes that the debt burden will ease in the near term. They cited recent increases in social payments indexing and a gradual reduction in overall citizen debt as signs of improvement. The association’s vice-president said that the extent of the adjustment would become clear once this year’s statistics are published. A slower rise in delayed loan payments in March and April 2022 also points to a potential decline in debt risk ahead.
According to industry observers, the debt load could ease if the trajectory of social support and loan maturities continues to stabilize in the coming months.
Banks say otherwise
Market participants in Russian banks interviewed by the press reported a reverse trend. They noted a rebound in consumer loan issuance and higher loan demand in May after a spring lull.
One bank reported a drop in consumer loans during March and April, followed by a 50% jump in May. The institution now anticipates returning to pre-crisis levels by June. Similar growth was observed at the UBRD, where May loan volume rose sharply and the number of applications grew significantly compared with March.
Rosbank highlighted a rise in cash loan applications in May, with the average loan size increasing from 440 thousand rubles to 515 thousand. DOM.RF also observed a near-full recovery in May to early-year levels for consumer loan demand.
The fall in interest rates from 18% to a range of 6.9% to 13% in May helped spur demand. Banks including Otkritie, Alfa-Bank, and UBRD reported lower rates, and Rosbank indicated it may adjust loan terms after the key rate decrease.
Both debts and defaults will grow
Analyst comments suggest that a lower key rate has sparked greater interest in consumer lending, though banks are likely to remain cautious. A short-term drop in the debt burden is possible, but the outlook for the year hints at potential shifts as incomes and debt servicing costs interact with loan growth. Economic risks could weigh on real incomes, possibly leading to a higher debt burden by year-end.
Industry experts from the Russian University of Economics and other financial institutes caution that the load may rise toward the end of the year as loans become more attractive and more citizens borrow. If economic conditions deteriorate, borrowers may attempt to settle loans, while declining incomes could slow loan repayments. Some loans are secured by collateral that could be at risk, adding tension to the outlook. A stabilization before 2023 remains a possibility, but risks persist.
Experts note that the overall economic context, price movements, and unemployment trends after an industrial adjustment could drive a rise in debt burdens and overdue loans in the second half of the year.