MOSCOW. (Anatoly Gorev, financial analyst, for RIA Novosti) - The problem of unpaid consumer loans in Russia has been a topic of discussion for some time now.
Recently, however, it has begun to attract even greater attention.
According to the Russian Central Bank, the value of arrears on loans to individuals soared by more than threefold over the year. Investors are worried not so much by the fact of growth itself as they are by its pace. This threatens the stability of the entire banking system, financial experts say.
The Central Bank has published statistics on the country's top 30 banks dated January 1, 2007. It shows an increase in consumer loan arrears from 10 billion rubles on January 1, 2006, to almost 33 billion rubles a year later.
This news alone would be enough to shake the Russian banking sector. The next day, however, another piece of news, equally striking if more local, was announced. "Russia's chief collector," Yevgeny Bernshtam, owner of the Sekvoiya agency, was appointed president of Home Credit and Finance, which is viewed as the leader in unpaid consumer loans. According to various sources, its loan arrears equaled 15%-20% of extended loans at the end of 2006, while the average for Russia did not exceed 3%.
The first news raised concerns not only about the growth of arrears, but also about the pace of it. It is the first time the market has seen such a surge, said Yulia Arkhipova, chief analyst with Rus-Rating.
As to Bernshtam's appointment, most view it as definite proof of the old maxim that tough times require tough decisions: HCF's problems with consumer loan arrears are so serious that the bank needs an in-house collector, who will also be in charge of the bank's entire business.
Yet no one seems to be gloating: in the current situation, when competition is forcing banks to ease loan terms and requirements for borrowers, no one is guaranteed against a surge of 'bad debts' in the portfolio. The same, as HCF has proved, is true about subsidiaries of foreign banks, which have extensive experience on other markets and have more reliable systems for checking borrowers than most Russian banks.
What will be next? Will the trend be reversed? Experts do not seem to have a definite answer. Anatoly Aksakov, deputy chairman of the State Duma banking committee, says he fears that the share of debt arrears in the consumer loan portfolio of Russian banks may reach "the critical threshold of 7%." "This would mean that actual arrears are at least two times higher and would represent a serious threat of a banking crisis," he emphasized.
Surprisingly, executives of foreign banks' subsidiaries are more optimistic. Philippe Delpal, chairman of the banking committee of the Association of European Businesses in Russia, admitted that the possibility of a non-payment crisis could not be totally ruled out. But, he said, "today, when leading banks are focusing on developing modern scoring models, credit history bureaus are emerging, and the level of clients' education in credit products is growing, we have all the necessary conditions for minimizing risks. So I am positive that there will not be a non-payment crisis in the next three years, first of all due to the Central Bank's policies."
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