Households’ Outstanding Debt to Credit Institutions is Approaching the Pre-Crisis Level

Households' debt to banks keeps growing at a high rate. In August, households' debt increased by 3.6%, while in the period fr om the beginning of the year, by 26.1%.
The above indices are close to the pre-crisis level; in the same period of 2008 the growth rates amounted to 30.9%, however, growth rates alone do not mean much without related economic indices among which the most important ones, in our view, are the debt burden on households' income and the amount of costs on households' ultimate consumption paid by means of bank loans.

Retail lending contribution to payment of consumer expenses has also approached the pre-crisis level. In the 2nd quarter of 2008, the volume of new loans to households amounted to 28.3% of the aggregate value of the retail turnover, public catering and paid services to the population. In the 2nd quarter of 2012, it amounted to 27.2%, while during eight months of the current year, to 25.6%. In other words, at present -- as before the 2008 crisis -- more than a quarter of households' consumer expenses is paid by means of bank loans.


The other side of the credit boom consists in a growing debt burden on households' incomes. In the 2nd quarter of 2012, the aggregate amount of households' mandatory payments on bank loans (interest payments and repayment of the principal debt) amounted to nearly 10% of households' disposable income. As regards the above index, Russia is almost on a par with the US, wh ere the debt burden on households' disposable income currently amounts to 10.7%. However, indices of the debt burden in the US are gradually going down from the peak level of 14% registered late in 2007. In Russia, on the contrary, the maximum level of 9% which was registered early in 2009 has already been surpassed.


The pre-crisis level of the debt to credit institutions has also been surpassed as regards the index of a ratio between households' debt to banks and households' income within the past twelve months. On September 1, 2008, that ratio amounted to 17.8%, while at present it has already exceeded 20%. It is to be noted that in the US the households' aggregate debt amounts to 95% of the incomes after it declined from 110% in 2007. However, as was stated above the extent of debt servicing in the Russian Federation and the US is almost the same. It can be explained by the fact that, first, Russian loans are much more expensive and, second, they are extended for a shorter term.

In Russia, the average term of a bank loan to individuals amounts at present to 2.5 years; it means that about 40% of the principal debt is repaid a year. Actually, the average term on mortgage loans does not exceed 7-8 years. Households' aggregate interest payments on bank loans are equal to the average cost of borrowing, that is, about 17% per annum.


Both the factors (short terms and high costs) are justified by higher risks of retail lending on the Russian market. So, the cost of borrowing has virtually remained unchanged as compared to 2007 despite the fact that the consumer price index fell nearly by 50% (from 12% to 6%), while the rate of refinancing is currently 2 p.p. lower than before.


М.Yu. Khromov, Researcher of the Structural Research Center