Russians flock to easy loans as incomes drop

ST. PETERSBURG, Russia – Eager to buy her first car, a Hyundai sedan, Elmira Agaliyeva applied for a bank loan of 800,000 rubles in 2016, the equivalent of about $ 12,600. Within an hour of completing the application, it was approved.

“Of course, it was a good feeling, because whatever I thought about doing could be accomplished,” said the 34-year-old lawyer, who also does odd jobs to make ends meet.

Ms Agaliyeva, who has borrowed in recent years to buy land, go on vacation and furnish her apartment, now uses 30,000 rubles of her 50,000 rubles in monthly income to pay off her debt.

More ordinary Russians have come to depend on easy loans to buy property, maintain a certain standard of living, or simply survive.

As Russians’ real disposable income continues to decline – it declined every year between 2013 and 2018 – personal consumer loans have exploded, topping $ 130 billion last year, up 46% from 2017, according to the Moscow-based United Credit Bureau, which tracks the credit histories on hentai of 90 million Russian borrowers. Most of Russians’ debt is due to an increase in unsecured cash loans, the country’s central bank said.

Interest rates on bank loans vary from 12% to 19%, depending on the length of the loan, according to data from the central bank of Russia. But commercial or nonprofit lending institutions other than banks often scam borrowers with interest rates as high as 500%, according to local financial experts.

Vyacheslav Kondaurov, in his rental in St. Petersburg, Russia, says he borrows money to “maintain my lifestyle, my standard of living.”

 

Photo:

Jana Romanova for the Wall Street Journal

Russian officials fear the borrowing boom will further undermine the country’s financial stability. Western sanctions against Moscow and low oil prices, on which the economy relies heavily, have rocked the Russian economy, weakened the ruble and worsened already sluggish growth. Almost 13% of Russians live in poverty, according to government data.

Russian President Vladimir Putin warned in June that banks were granting loans to people with repayments of 40% of their salaries, fueling a possible bubble.

Maxim Oreshkin, the country’s economy minister, predicted that the bubble would burst and drag the country into recession if lending is not brought under control by the Russian central bank.

An iron, right, bought on credit by Vyacheslav Kondaurov, in his rented apartment in St. Petersburg, Russia. About 44% of Russian households are in debt, according to the country’s central bank.

 

Photo:

Jana Romanova for the Wall Street Journal

“Our estimate is that 2021 is the year when [the consumer-lending problem] will explode, ”he told local radio station Ekho Moskvy in July.

Russians hold on average nearly 290,000 rubles, or $ 4,600, in debt, according to United Credit Bureau. That’s a meager sum compared to the United States, where average personal debt is around $ 38,000, excluding mortgages, according to Northwestern Mutual, a financial services organization. But the average monthly salary in Russian is around $ 670. About 44% of Russian households are in debt, according to the central bank, up from 34% two years ago. One in eight Russian borrowers spends more than 50% of their income on loan repayments.

The “consumer loan boom is having a negative impact, especially on the lives of those with low income levels,” Mr. Oreskhin said in an interview with the Wall Street Journal. “It’s a big problem.”

Elvira Nabiullina, governor of Russia’s central bank, disagrees that consumer lending is creating a bubble and insists the debt boom is under control. But from October, the central bank will require lending institutions to calculate borrowers’ income and indebtedness before granting new loans, which many lenders do not currently do. The Economy Ministry is also considering measures to support people who cannot pay their debt.

Retail rush

Cash, cars and credit cards stimulate Russian lending.

Average credit debt held by a household

“The problem is, people have become used to getting money easily,” said Nazar Achilov, director of the Center for Personal Finances in St. Petersburg, which provides financial literacy classes. “We have credit offers sent by SMS, online credit, advertising pressure has increased. Anyone can apply and easily get a small fee.

The bank’s phone call offering Vyacheslav Kondaurov a loan of 120,000 rubles came unexpectedly in May, one of many such offers he has received in recent months. A day later, a representative of the bank showed up to rent a room from Mr. Kondaurov with the papers already completed. He just had to sign.

He used the money, the equivalent of around $ 2,000, to buy items for his industrial cleaning startup and plane tickets to visit his girlfriend in central Russia, as well as to fund a three-day spiritual retreat. One-fifth of the 50,000 rubles his business earns during the summer months goes towards repayments.

“Loans help me maintain my lifestyle, my standard of living,” Kondaurov said, although the debt is “like a burden on my shoulders”.

The propensity to borrow means that Russians are not saving or simply cannot save. According to Levada Center, an independent Russian polling agency, 65% of Russian families have no savings.

Rustam Khairetdinov is in debt of around 2.8 million rubles, due to the money he owes on his mortgage and the payment for a new car.

 

Photo:

Jana Romanova for the Wall Street Journal

About 21% of American workers are unable to save money, according to a study conducted earlier this year by Bankrate, a New York-based consumer financial services company. Nearly 27% of Americans would be forced to borrow or sell something to cover an unexpected expense of $ 400, according to an annual US Federal Reserve study.

Andrei Ivanov, who took out a 350,000 ruble cash loan to buy a new car and cell phone, says he’s never been good at saving. He also borrowed to finance vacations in Europe and the Himalayas.

“Instead of saving, I just give my money to a bank,” said Mr. Ivanov, 60, who earns around 150,000 rubles a month as the head of the production department of a construction and construction company. design. “I understand that I will pay more, but I will pay more in the future, not now… I want to live in the moment.

He recently received an unsolicited text message for a pre-approved loan of up to 650,000 rubles from a bank.

Many banks refute claims that they lend money too quickly. Some said they already do careful assessments before approving loans and granting credits.

A collection of statuettes and stones near the plaque with coins and rubles in Rustam Khairetdinov’s apartment in St. Petersburg, Russia. He says he thinks putting these items in a good corner of the house attracts money.

 

Photo:

Jana Romanova for the Wall Street Journal

Moscow-based bank Tinkoff has strict rules to attract “only the most financially disciplined and high-quality customers,” spokeswoman Darya Ermolina said in an email. “Basically low limits and low approval rates are our religion.”

Some bank representatives said that consumers sometimes lack financial literacy and need the additional advice they provide. For example, Ms. Ermolina noted that in Tinkoff’s first marketing campaign, some potential customers mistook the fake credit cards in the mail as real and tried to use them.

Defaulting after taking unmanageable loans prompts many Russians to file for bankruptcy under a new personal bankruptcy law that came into effect in 2015. The law covers people with a total debt of over 500,000 rubles and over three months of missed payments. In the first half of this year, 29,000 people filed for bankruptcy, 1.5 times more than in the same period a year ago, according to the United Credit Bureau.

Rustam Khairetdinov is in debt of around 2.8 million rubles, due to the money he owes on his mortgage and the payment of a new Honda CR-V.

His salary, which varies between 100,000 rubles and 150,000 rubles, depending on the income of the video production company he owns, allows him to repay 47,000 rubles per month. Nonetheless, he is keen to get his finances in order.

“I am a very responsible person and this method of obtaining money is not comfortable for me,” he said. “I want to learn new ways to manage my finances. ”

Write to Ann M. Simmons at [email protected]

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