We Expect a Further Slowdown in the Growth Rate of Retail Crediting

In the middle of last year, Russia's financial sector registered a record high growth rate of the amount of outstanding debt against loans granted to individuals.

Over the 12-month period that ended on 1 July 2012, this figure had increased by nearly 44%. Later on, banks' retail credit portfolio was increasing at a noticeably slower rate. As seen by the results of April 2013, the per annum growth rate dropped to 36%. The growth rate of unsecured loans demonstrated the most impressive decline - from its summer 2012 peak of above 60% it had dropped to 47%, as seen by the results of Q1 2013.

The slowdown of banks' lending activity in the retail market displayed two trends. The cost of debt is on the rise. Thus, while in Q1 2012 the average weighted cost of loans extended to individuals had been 16.5% per annum, in Q1 2013 it was already at the level of 17.7% per annum, which is higher than the pre-crisis indices - although the inflation rate has become much lower.


The combination of high interest rates and the substantial nominal debt volume pushes up the debt burden on the population's income. In Q1 2013, the planned household expenditures on the servicing of bank loans (that is, in accordance with their payment schedules) amounted to 12% of disposable household income (Rb 976bn). At the peak of the crisis (in Q1 2009), these expenditures had constituted only 9% of the population's disposable income (Rb 473bn).


As a consequence of the increasing debt burden on the population's income, the retail credit portfolio's quality has begun to deteriorate. Since the year's beginning, the share of outstanding debt against loans extended to individuals and the amount of reserves against potential losses on retail loans have both been on the rise. It is noteworthy that these indices have been pushed up not so much by the slower growth rate of the aggregate credit portfolio, but specifically by the accelerated growth rates of outstanding debt and reserve. Thus, the amount of loans on which payments were delayed has risen since January 2013 by 15%, while its growth over the entire last year's period amounted to only 6%.


 In a future perspective, towards this year's end we expect a further slowdown in the growth rate of the retail credit portfolio alongside a gradual deterioration of its quality. The probability of the emergence of a fully fledged bad debt crisis in this segment of the credit market will depend on the movement of household income and the financial capacity of households for a timely execution of their liabilities to banks.


M. Yu. Khromov - Senior Expert of the Structural Research Center