Russia’s banking sector saw a strong acceleration in retail lending across all segments in 2017 – and that is probably a bad thing.
Some 35mn new retail loans, totaling RUB5.7 trillion, were issued last year, according to the United Credit Bureau; in 2016, 30mn new loans worth RUB4.1 trillion were issued.
The acceleration in retail lending activity (the total retail loan portfolio, based on CBR data, increased by 12.7% y/y in 2017) was observed in all segments: mortgages, auto loans, credit cards and personal loans.
The strongest acceleration was in the mortgage segment, which increased by 42% in nominal terms and by 30% in real terms.
“Still, nearly 70% of new loans were personal loans, which increased by 33% in nominal terms and by 14% in real terms,” says Natalia Orlova, chief economist at Alfa Bank. “However, we are concerned that the strong acceleration in lending was driven by the high-risk segment of population – or people living below the poverty line. Moreover, the CBR also expressed concerns about the rapid growth in retail lending.”
Analysts and the regulator are worried that another consumer credit bubble is in the making as retail loans are growing faster than incomes.
Russians borrowed from banks RUB12 trillion ($210bn) in January-November 2017, up RUB1.2 trillion or 10% year-on-year, while their deposits, although more than twice as much at RUB25 trillion, were up just by RUB800bn, which corresponded to just a 3% increase.
While the increase in spending is welcomed by retailers and will add mildly to economic growth this year, the economists is worried that funding a middle class lifestyle on the never never is unsustainable. Average debt has risen over the last few years from 1-2 average salaries to close to five time the average salary now.
The spending is already showing up in some sectors. Smartphones saw record sales in 2017, but retailers report that half the sales were made using a credit card.
In general the Russian consumer seems to have embraced the consumer credit culture in the last year – and banks are aggressively pushing cards and other credit products on the consumer. Credit card issuance was up by half in 2017 alone.
At the same time the point-of-sale unsecured lending that drove the growth of banks like Russian Standard (Russky Standart) seem to be on the decline.
Some 5mn new credit cards were issued in Russia so far in 2017, which is 45.6% more in the same period a year earlier, Vedomosti daily said on December 11 citing the data of the National Bureau of Credit History.
Previous reports showed that as consumption again emerges as Russia's main growth driver, more and more Russian consumers rely on credit for both luxury and basic spending.