Victoria Belozerova, RusRating Senior Analyst in Moscow -
The retail loan market grew by 75% from the beginning of 2006. Auto loans, credit cards and mortgages were the fastest growing segments. Among the banks with the largest loan portfolios are those that entered the retail loan market in 2006, which shows the market has a large capacity and is not saturated.
The interest margins on ruble retail loans fell from 16% in the beginning of 2006 to 10% in the first quarter of 2007, but remains 4% higher than for other loans. Banks have increased profits by offering new products, and charging commission and loan-financing fees.
Official data on overdue loans is becoming less informative because banks are working with collection agencies. Taking into account data from collecting agencies and the volumes of overdue debts reported by the banks, RusRating estimate that the total volume of overdue retail loans could be about 75.5bn rubles, which is triple the amount of 2006.
Non-repayment risks differ significantly by market segment due to the different approaches by banks to evaluating borrowers and insuring risk. The highest profits are in express-loans where non-repayment risks are also the highest. Most of this profit is due to commission fees. The Central Bank's requirement to disclose effective rates will affect the express-loans (and credit cards) market the most.
Non-repayment risks for auto loans are lower and vary by bank. Nevertheless, the volume of bad auto loans is growing faster than the market, which confirms RusRating's forecast of a rise in overdue loans as the market develops and repayment dates approach.
Risks in mortgage financing are minimal. The banks covered in the report are primarily new market players since 2006. Growth in overdue mortgage loans is expected to be no more than 1-1.5% in the medium-term with the current stable general economic conditions.
The retail loan market will continue growing, with banks diversifying their products, competing for more attractive loan conditions for borrowers, but also paying attention to portfolio quality and profitability.
Loan portfolio structure
Source: Central Bank of Russia, analysis: RusRating
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