SOCIETY
The average Russian owes debt to the motherland and the bank
May 3, 2023
Tatyana Rybakova
Journalist and writer
Tatyana Rybakova writes that the consumer lending market is now mostly mortgages, but that is set to change, with short-term and insane-rate loans for the poor on the rise. Even Putin’s ex-wife is in the microfinance business.
A street advertisement for loans "even with a bad credit history" for up to RUB 1 million "with guaranteed approval." Many such ads can be found on the streets of Russian cities. Source: VK
Life in debt
A year after the start of the war, Russia is seeing another credit boom, according to data from the Central Bank.
Mortgage lending was up 2.1% in March 2023 versus February 2023 and 15.5% versus a year earlier. This was the same monthly uptick as last March. True, in annual terms, mortgages were up more in March 2022 – 26.8% – but the effect of the extension of the “preferential mortgage” program, first introduced in 2020 during the pandemic, should be taken into account.
Consumer lending has also picked up: after the start of the war, it was down -1.9% in March 2022 to -0.4% in May 2022; from that point, it inched higher, with September 2022 an exception, when consumer loans expanded 1.4% – growth matched by March 2023.
The similar results from March and last September are no coincidence. Recall that on September 21, 2022, the “partial mobilization” was announced. Considering that rumors of mobilization appeared in early September, and then the first emigrants of the “mobilization” wave went abroad, many borrowers could have been people who sent their sons and husbands abroad – plane tickets to countries still open for Russians from the beginning of September had begun to rise in price, exceeding $1,000.
In March of this year, talk about the possibility of a new mobilization resulted in new emigrants. So far, however, the flow is not comparable to autumn. But when the Central Bank reports data for April 2023 (expected by the end of May), we could see a new record for growth in consumer lending. The driver looks set to be the amendments to the law “On Military Duty and Military Service” that were swiftly adopted by the Duma and leave practically no chance for those who remain in Russia to evade either conscription or mobilization.
However, mortgages still account for more than half of total lending: in March, out of the RUB 28,330 billion of loans, RUB 14,655 billion were issued specifically for the purchase of housing. The March growth in the mortgage segment can be attributed to the fact that after March 15, banks practically stopped issuing mortgages at reduced interest rates: the Central Bank, which had long fought against near-zero rates, declared that mortgages issued after March 15 would require additional reserves by banks from March 30. If this is right, then as early as April, consumer loans can be expected to overtake mortgages in terms of growth.
This brings significant risks. First of all,
A year after the start of the war, Russia is seeing another credit boom, according to data from the Central Bank.
Mortgage lending was up 2.1% in March 2023 versus February 2023 and 15.5% versus a year earlier. This was the same monthly uptick as last March. True, in annual terms, mortgages were up more in March 2022 – 26.8% – but the effect of the extension of the “preferential mortgage” program, first introduced in 2020 during the pandemic, should be taken into account.
Consumer lending has also picked up: after the start of the war, it was down -1.9% in March 2022 to -0.4% in May 2022; from that point, it inched higher, with September 2022 an exception, when consumer loans expanded 1.4% – growth matched by March 2023.
The similar results from March and last September are no coincidence. Recall that on September 21, 2022, the “partial mobilization” was announced. Considering that rumors of mobilization appeared in early September, and then the first emigrants of the “mobilization” wave went abroad, many borrowers could have been people who sent their sons and husbands abroad – plane tickets to countries still open for Russians from the beginning of September had begun to rise in price, exceeding $1,000.
In March of this year, talk about the possibility of a new mobilization resulted in new emigrants. So far, however, the flow is not comparable to autumn. But when the Central Bank reports data for April 2023 (expected by the end of May), we could see a new record for growth in consumer lending. The driver looks set to be the amendments to the law “On Military Duty and Military Service” that were swiftly adopted by the Duma and leave practically no chance for those who remain in Russia to evade either conscription or mobilization.
However, mortgages still account for more than half of total lending: in March, out of the RUB 28,330 billion of loans, RUB 14,655 billion were issued specifically for the purchase of housing. The March growth in the mortgage segment can be attributed to the fact that after March 15, banks practically stopped issuing mortgages at reduced interest rates: the Central Bank, which had long fought against near-zero rates, declared that mortgages issued after March 15 would require additional reserves by banks from March 30. If this is right, then as early as April, consumer loans can be expected to overtake mortgages in terms of growth.
This brings significant risks. First of all,
"Russians are already heavily indebted. A survey of the financial situation of households conducted in April-August 2022 by order of the Central Bank showed that 23% of households have debts,"
while debt repayments account for an average of 18% of all expenditures. According to the National Bureau of Credit Histories, last year each borrower had an average of 2.3 loans.
In addition, not without reason the Central Bank is worried about new inflationary pressures from the rise consumer lending. If prices start to climb, Russians will go to banks for more loans. This is another problem: people are increasingly taking out consumer loans because without them it would be impossible to maintain their usual standard of living – and most people are not ready to lower their already-low standard of living.
For example, a third of those surveyed by the online financial platform Webbankir are ready to take out a loan to celebrate the May holidays, while every eighth has already done so.
If Russians are ready to borrow to pay for their pleasures, then they will also go to the bank for more serious reasons as well: since last autumn, they have used credit not only for plane tickets for men dodging the mobilization, but also military uniforms, including protective equipment, for men who were mobilized and went to fight. To “repay their debt to the motherland,” many families had to get into real debt, and there is no doubt that new fodder for the war will continue to be recruited in the same way: with the help of friends, relatives, volunteers and... loans.
A profitable business
The most important thing, however, is the cost of the loan. While the Central Bank expresses concern about inflated prices for new housing amid near-zero-rate mortgages, we are still talking about overpaying by a few percent. Bad, but not terrible – especially if housing prices are rising and people are trying to repay their mortgages ahead of schedule, while rates are low.
Yet when poor people go for a loan, they most often turn not to a bank, but to a microfinance organization, where loans are issued without any nitpicking about borrowers’ financial situation, sometimes at 325% per annum. And only from July 1, 2023, the Central Bank will introduce a limit of no more than 292% per annum.
According to MiR, an association of microfinance organizations whose loan portfolio accounts for 80% of this market, in 2022 MiR members issued RUB 294.5 billion of microloans. According to the Central Bank, RUB 364.0 billion of such loans were issued overall, about 3% of consumer loans issued in 2022.
It might seem like not that much, but consider that, according to MiR, its members have more than 17 million active borrowers. The thing is that microloans are very small, at about RUB 12,000 on average, according to the Central Bank. However, for a huge number of Russians, this is the size of their monthly salary.
Official microfinance organizations are only the top of the iceberg. At bus stops in any provincial city, you can see a lot of ads printed on bad paper for “quick money,” “a loan without problems,” a “payday loan,” etc. Most of these ads are from illegal loan sharks. And though the Central Bank is fighting them, this business is flourishing. And often in close, corrupt cooperation with local silovik and government institutions.
In addition, not without reason the Central Bank is worried about new inflationary pressures from the rise consumer lending. If prices start to climb, Russians will go to banks for more loans. This is another problem: people are increasingly taking out consumer loans because without them it would be impossible to maintain their usual standard of living – and most people are not ready to lower their already-low standard of living.
For example, a third of those surveyed by the online financial platform Webbankir are ready to take out a loan to celebrate the May holidays, while every eighth has already done so.
If Russians are ready to borrow to pay for their pleasures, then they will also go to the bank for more serious reasons as well: since last autumn, they have used credit not only for plane tickets for men dodging the mobilization, but also military uniforms, including protective equipment, for men who were mobilized and went to fight. To “repay their debt to the motherland,” many families had to get into real debt, and there is no doubt that new fodder for the war will continue to be recruited in the same way: with the help of friends, relatives, volunteers and... loans.
A profitable business
The most important thing, however, is the cost of the loan. While the Central Bank expresses concern about inflated prices for new housing amid near-zero-rate mortgages, we are still talking about overpaying by a few percent. Bad, but not terrible – especially if housing prices are rising and people are trying to repay their mortgages ahead of schedule, while rates are low.
Yet when poor people go for a loan, they most often turn not to a bank, but to a microfinance organization, where loans are issued without any nitpicking about borrowers’ financial situation, sometimes at 325% per annum. And only from July 1, 2023, the Central Bank will introduce a limit of no more than 292% per annum.
According to MiR, an association of microfinance organizations whose loan portfolio accounts for 80% of this market, in 2022 MiR members issued RUB 294.5 billion of microloans. According to the Central Bank, RUB 364.0 billion of such loans were issued overall, about 3% of consumer loans issued in 2022.
It might seem like not that much, but consider that, according to MiR, its members have more than 17 million active borrowers. The thing is that microloans are very small, at about RUB 12,000 on average, according to the Central Bank. However, for a huge number of Russians, this is the size of their monthly salary.
Official microfinance organizations are only the top of the iceberg. At bus stops in any provincial city, you can see a lot of ads printed on bad paper for “quick money,” “a loan without problems,” a “payday loan,” etc. Most of these ads are from illegal loan sharks. And though the Central Bank is fighting them, this business is flourishing. And often in close, corrupt cooperation with local silovik and government institutions.
"Millions of people whose salaries are barely enough to survive, in the event of unforeseen expenses – be it illness, accident or mobilization – have no choice but to go to official and ‘shadow’ loan sharks."
In the summer of 2022, state TV showed a story in which the parents of a Russian soldier who died in Ukraine bought a car with the money they received as compensation. Source: Youtube
Perhaps this is the reason that some Russian families are ready to give their husbands and sons to be slaughtered, which is so shocking to the general public? After all, Russian propaganda advertised the family of a killed mobilized man that had bought a white Lada with the “burial money” – in most conversations with men going to war and their relatives, we hear simple dreams like buying a car or doing a renovation. The dream of repaying loans is almost always present as well. Because otherwise it is impossible to pay off debts at a rate of almost 1% daily.
But the microfinance organizations feel great. Judge for yourself: at a rate of 325% per annum, only 35% of loans, according to the Central Bank, were nonperforming. When a 300% profit drops by a third, “only” 200% remains.
It is not surprising that this business has long been populated by people with connections. At the regional level, it is those connected to local authorities, and at the federal level to the Kremlin. For example, state-owned VTB began to issue “loans for the poor“ in the amount of RUB 5,000-30,000.
And the connections run right up to Russian President Vladimir Putin. As it turns out, even his ex-wife Lyudmila Ocheretnaya (maiden name Shkrebneva) made money on lending to the poor. In 2022, a company associated with her called CarMoney brought in a record RUB 391.3 million, its net profit rising 66% over the war-marked year, the Mozhem obyasnit Telegram channel reported.
However, there is some relief for the poor. For example, the government submitted a bill to the Duma that would lower the minimum indebtedness for which you can file for out-of-court bankruptcy (many debtors simply don’t have money to go to court) from RUB 50,000 to RUB 25,000 and raise the maximum from RUB 500,000 to RUB 1 million. The Central Bank reported that banks have issued credit holidays for military personnel and their families on 188,300 loans. True, the credit holidays do not apply to microfinance organizations, so Lyudmila Ocheretnaya does not have to worry about her business.
But the microfinance organizations feel great. Judge for yourself: at a rate of 325% per annum, only 35% of loans, according to the Central Bank, were nonperforming. When a 300% profit drops by a third, “only” 200% remains.
It is not surprising that this business has long been populated by people with connections. At the regional level, it is those connected to local authorities, and at the federal level to the Kremlin. For example, state-owned VTB began to issue “loans for the poor“ in the amount of RUB 5,000-30,000.
And the connections run right up to Russian President Vladimir Putin. As it turns out, even his ex-wife Lyudmila Ocheretnaya (maiden name Shkrebneva) made money on lending to the poor. In 2022, a company associated with her called CarMoney brought in a record RUB 391.3 million, its net profit rising 66% over the war-marked year, the Mozhem obyasnit Telegram channel reported.
However, there is some relief for the poor. For example, the government submitted a bill to the Duma that would lower the minimum indebtedness for which you can file for out-of-court bankruptcy (many debtors simply don’t have money to go to court) from RUB 50,000 to RUB 25,000 and raise the maximum from RUB 500,000 to RUB 1 million. The Central Bank reported that banks have issued credit holidays for military personnel and their families on 188,300 loans. True, the credit holidays do not apply to microfinance organizations, so Lyudmila Ocheretnaya does not have to worry about her business.
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