Russians flock to easy loans as incomes plummet

S T. 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. An hour after completing the application, it was approved.

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

Ms Agaliyeva, who in recent years has borrowed 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.

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

Like real disposable Russians’ income keeps falling(Decreased every year between 2013 and 2018) Personal consumption loans have exploded, topping $ 130 billion last year, up 46% compared to 2017, according to the Moscow-based United Credit Bureau, which tracks the credit histories 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 range from 12% to 19%, depending on the length of the loan, according to data from Russia’s central bank. But commercial or nonprofit lending institutions other than banks often extort money from borrowers with interest rates that can reach more than 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 worry that the debt boom could further undermine the country’s financial stability. western sanctions on Moscow and low oil prices, on which the economy is heavily dependent, have taken a toll on Russia’s economy, weakened the ruble and aggravated already slow growth. Almost 13% of Russians live in poverty, according to government data.

Russian president

Vladimir Putin

It warned in June that banks were making loans to people whose repayments amount to 40% of their salaries, fueling a possible bubble.

Maxim Oreshkin, the country’s economy minister, projected that the bubble would burst and drag the country into recession if the Russian central bank did not control lending.

An iron, right, bought on credit by Vyacheslav Kondaurov, in the apartment he rents 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 in which [the consumer-lending problem] it will explode, ”he told local radio station Ekho Moskvy in July.

Russians average nearly 290,000 rubles, or $ 4,600, in debt, according to the United Credit Bureau. This is a small sum compared to the US, where the average personal debt is about $ 38,000, excluding mortgages, according to Northwestern Mutual, a financial services organization. But the average Russian monthly salary 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 payments.

The “consumer loan boom is especially negatively impacting the lives of those with low incomes,” Oreskhin said in an interview with the Wall Street Journal. “Its a big problem”.

Elvira Nabiullina, the governor of Russia’s central bank, disagrees that consumer loans are creating a bubble and insists the debt boom is under control. But starting in October, the central bank will require lenders to calculate borrowers’ incomes and their debt burden before making new loans, something that many lenders are not doing now. The Ministry of Economy is also weighing measures to support people who cannot pay their debt.

Retail rush

Cash, cars, and credit cards drive Russian loans.

Average home loan debt

“The problem is that people have become used to getting easy money,” said Nazar Achilov, director of the Center for Personal Finance in St. Petersburg, which runs courses in financial education. “We have credit offers sent through text messages, credit online, the pressure of the ads has increased. Anyone can apply and easily get a small fee. “

The bank’s phone call offering Vyacheslav Kondaurov a loan for 120,000 rubles came out of nowhere in May, one of several such offers he has received in recent months. A day later, a bank official showed up at Mr. Kondaurov’s one-bedroom rental apartment with the paperwork already completed. All he had to do was sign.

He has used the cash, the equivalent of around $ 2,000, to help purchase items for his industrial cleaning startup and plane tickets to visit his girlfriend in central Russia, as well as to fund a spiritual retreat. three days. One fifth of the 50,000 rubles your business earns during the summer months goes to rebates.

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

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

Rustam Khairetdinov is about 2.8 million rubles in debt, as a result of 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 working Americans can’t save money at all, according to a study conducted earlier this year by Bankrate, a New York-based consumer financial services company. Almost 27% of Americans would be forced to borrow or sell something to cover an unexpected expense of $ 400, according to an annual study by the US Federal Reserve.

Andrei Ivanov, who took out a cash loan of 350,000 rubles to buy a new car and cell phone, says he has never been good at saving. He has also taken out loans to finance vacations in Europe and the Himalayas.

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

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

Many banks counter accusations that they are rushing to lend money. Some said they already do careful evaluations before approving loans and granting credit.

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


Photo:

Jana Romanova for The Wall Street Journal

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

Some bankers said that consumers sometimes lack financial literacy and need additional guidance, which they provide. For example, Ms. Ermolina noted that during one of Tinkoff’s early marketing campaigns, some potential customers mistook the mailed dummy credit cards as real and tried to use them.

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

Rustam Khairetdinov is about 2.8 million rubles in debt, as a result of the money he owes on his mortgage and the payment for a new Honda CR-V.

His salary, which ranges from 100,000 rubles to 150,000 rubles, depending on the intake of the video production company he owns, allows him to pay 47,000 rubles a month. However, you are eager to get your 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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