Retail Lending Starts to Decline

In the 3rd quarter of 2012, growth rates of aggregate assets of the banking sector amounted to 5.0%, including 1.9% in September, while annual growth rates remained in the range of 20% to 22%. The aggregate volume of profit received by the banking sector in September became the minimum one in 2012 (Rb 72.3bn). As a result, in September profitability of assets of the banking sector decreased to 1.9% per annum, while in the entire period from the beginning of the year it remains at the level of 2.3%.

In the past few months, the main source of bank's borrowed funds - account balances and deposits of individuals - has kept growing at a slower rate than the aggregate assets of the banking sector. In the 3rd quarter of 2012, the volume of funds in accounts and deposits of individuals grew by 2.5%, including 1.0% in September. However, the annual growth rates of households' funds returned to the level of the 1st quarter of 2012 (19.1%), that is, aggregately, in the 2nd quarter and the 3rd quarter growth in deposits was comparable to that in the respective period of 2011, while in the 3rd quarter it happened to be somewhat higher.


In January-September 2012, the saving rate of households as regards banking deposits was equal to 4.3% and happened to be higher than in the respective period of 2011. However, in 2012 with cash funds (both in the national and foreign currency) taken into account households allocated for saving purposes the smaller portion of their income (4.8% against 5.0% a year before). Accordingly, in 2012 relative growth in deposits takes place by means of redistribution of households' assets out of cash funds. A considerable contribution to growth in households' funds with the banking sector is an accrual of interests on deposits. So, in the 3rd quarter the average profitability of households' deposits (without taking into account current account balances) amounted to 6.2%, having increased by 0.3 p.p. as compared to the 1st quarter. In the 3rd quarter, the total volume of households' income from bank accounts and deposits amounted to about Rb 170bn which is equal to growth of over 50% in households' funds with banks.

In the 3rd quarter, legal entities' account balances and deposits rose by 1.7%, including 2.3% in September. At the same time, annual growth rates fell to 14.9% from 19.1% a month before. The factor behind such dynamics was the so-called "effect of the base": in September 2011 the Bank of Moscow attracted within the frameworks of the state program of financial recovery a long-term loan for the amount of Rb 295bn from the Deposit Insurance Agency (DIA). According to the Russian accounting standards, the above funds were posted as a deposit of a non-banking entity. Without taking into account the DIA funds with the Bank of Moscow, in September annual growth rates of legal entities' funds with banks would have slowed down from 15.7% to 15.4%.


The ratio of current accounts to term deposits remained below 1, that is, for day-to-day operations to be maintained enterprises and business entities need less than a half of their funds with banks, while a larger portion of such funds is placed in term deposits. In September, that ratio changed somewhat in favor of current accounts whose share grew from 45% to 47%.

In the 3rd quarter, retail lending started to slow down. Within the quarter, growth rates were 1.5 p.p. lower than in the 2nd quarter (9.3% against 10.8%), the September growth in the debt of individuals became the lowest one from March 2012 (2.7%), while the annual values decreased to 41% from 42%-43% during summer months. Also, the share of newly extended loans in the households' ultimate consumption fell somewhat from the maximum of 28% in May to 26% in September. In the period from the beginning of the year (January-September 2012), the volume of new bank loans to households amounted to over 25% of households' ultimate consumption.


Slowdown of lending can be explained by the fact that loans to retail borrowers gradually became more expensive. So, if in the 1st quarter 2012 the average cost of loans to individuals (calculated as a ratio of interest income received by banks to the average debt within that period) amounted to 16.5% per annum in the 3rd quarter it increased by nearly 1 p.p. to 17.4% per annum. That level of cost of a bank loan to individuals is the maximum one since 2006 when profitability of retail lending amounted to 17.6% on the basis of the results of the year. In subsequent years (2007-2011) it varied in the range from 15.5% to 16.6% per annum.


Growth in the cost of retail lending will result in a higher debt burden on households' disposable income. According to the estimates of the Gaidar Institute, in the 3rd quarter of 2012 households spent 10.4% of their disposable income on servicing of their debt to banks (payment of interests and the principal debt in accordance with the payment schedule). For comparison, the previous maximum level of 9.7% was registered in the 1st quarter of 2009.


In the 3rd quarter of 2012, the debt of corporate borrowers to banks increased by 5.3%, including 1.7% in September. Annual growth rates fell to 18.6%, which is the minimum value from August 2011. The above points to the fact that there is a sustained trend of slow-down of growth rates of bank lending to the economy from the maximum level of 22.8% as of the beginning of 2012; annual growth rates of the corporate credit portfolio have already decreased by more than 4 p.p.


In September 2012, indices of quality of the credit portfolio of corporate borrowers did not change. The share of the overdue debt amounted to 4.9%, while the ratio of loan loss reserves to accounts payable, to 7.8%.


М.Yu. Khromov, Leading Expert of the Structural Research Center of the Gaidar Institute