MIKHAIL KHROMOV: RATES SHALL BE APPROXIMATELY ZERO AGAINST SUCH DYNAMICS OF INCOMES
Mikhail Khromov, Head of Financial Studies Department of the Gaidar Institute, commented on the situation at consumer finance market to “Novaya gazeta”.
Households incomes do not grow four or five years in a row in this country. Rates should be approximately zero against such dynamics of incomes in order to secure return of credits on time. Otherwise, load is increasing, however it is still lower than peak values. Overall tone simply lacks optimism associated with economic growth, development prospects, and emotionally it may contribute to negativity. Everybody expects excesses sooner or later.
On one hand, the more loans people have, the more interest they pay and the less their real disposable incomes are. However, initial basic part of income received does not depend on loans. It is a complicated issue whether reduction of incomes is a motivation to loan growth. In fact, we face now such a paradoxical situation when a rather explosive growth of loans sits well with lack of income growth. In my opinion, this is associated with two reasons.
Firstly, these are the historically low interest rates. Secondly, households living under reduction of incomes for a long period of time try somehow maintain their usual consumption. Consumption and incomes schedules are multidirectional now.
“Boiling point”: everything depends on how to determine it. When it comes to the statement that everybody will be a bankrupt, then, probably, it may never happen. When loan delinquency is estimated, within 1-2 years it may reach levels relevant to previous crises.
However, it will not have a strong impact on economy so far. It is true that banks will stop granting loans, growth rate of retail consumption will reduce and probably sale of housing will go slightly down.
On one hand, the more loans people have, the more interest they pay and the less their real disposable incomes are. However, initial basic part of income received does not depend on loans. It is a complicated issue whether reduction of incomes is a motivation to loan growth. In fact, we face now such a paradoxical situation when a rather explosive growth of loans sits well with lack of income growth. In my opinion, this is associated with two reasons.
Firstly, these are the historically low interest rates. Secondly, households living under reduction of incomes for a long period of time try somehow maintain their usual consumption. Consumption and incomes schedules are multidirectional now.
“Boiling point”: everything depends on how to determine it. When it comes to the statement that everybody will be a bankrupt, then, probably, it may never happen. When loan delinquency is estimated, within 1-2 years it may reach levels relevant to previous crises.
However, it will not have a strong impact on economy so far. It is true that banks will stop granting loans, growth rate of retail consumption will reduce and probably sale of housing will go slightly down.