The Average Borrower’s Logic has Changed

For the first time, the RF Ministry of Economic Development has admitted that the situation in which consumer lending growth rates are ahead of individuals’ nominal wages is fundamentally unstable. According to the estimates of the RF Ministry of Economic Development, monthly growth rates cleared of the seasonal factor have already amounted to 20.2% year on year. Annual growth rates not underpinned by consumer lending sped up during 2017 and amounted to 11.1% in December 2017 (within a year the volume of lending to households increased by 13.2%) with foreign exchange revaluation excluded. Nominal wages and incomes increased by 7.2% and 1.1%, respectively.

Last year, growth in retail lending renewed and mortgage lending volumes attained their maximum levels. But the problem is that for four years running households’ real incomes have been falling.

For the sake of comparison, let’s take the period before the 2008 crisis when incomes and loans used to have double digit growth rates. People were confident then that their incomes would keep growing and they would be able to repay their loans. A similar motivation was observed during the credit boom in 2011?2013 when individuals used to take loans in expectation of higher incomes.

But soon the sanctions followed, oil prices fell and the economy used up its production capacities. The revenues and the economy stopped growing, but lending increased starting from 2016. However, the average borrower’s logic changed, too. At present, people take loans to restore their level of consumption after the crisis and not in expectation of any improvement of their wellbeing or economic growth.

Mikhail Kromov, Head of the Financial Studies Department, Gaidar Institute