Russia sees surge in consumer credit

Central bank acts to slow the growth in lending

It is a Monday afternoon and Home Credit & Finance Bank on Moscow’s Leninsky Prospekt is bustling, as customers stop in on their lunch breaks to pay off their monthly credit bills and sign up for new loans.

“Quick money!” reads one sign. With just two identification documents a client can borrow Rb75,000 ($2,500) for up to six years; with four, they can get more than $8,000.

“It’s great,” Irina, a returning customer, beams. Within 15 minutes she is out the door with a new two-year Rb150,000 loan to buy furniture.

Business at Home Credit, one of Russia’s biggest consumer banks, is booming alongside the rest of Russia’s retail lending sector.

Consumer lending swelled in Russia by about 40 per cent last year, while credit card loans rose by close to 80 per cent. At the countries’ retail-only lenders the growth was even more pronounced.

Home Credit saw its retail loan portfolio jump by 95 per cent last year. The portfolio of Tinkoff Credit Systems, a credit card specialist part-owned by Goldman Sachs, grew by a whopping 120 per cent.

The boom has been welcomed by the likes of Darya Baranovskaya, the manager of Home Credit’s branch on Leninsky Prospekt, who works on commission and says she has been giving out more loans than ever. “Now that there is economic stability, people have started to have more belief in the future and take out more credit,” she says proudly.

Yet the growth has given pause to Russia’s central bank, which late last year sat down the heads of some of the country’s biggest lenders to request that consumer lending growth not exceed 30 per cent in 2013, according to people familiar with the talks.

The regulator has already taken steps to slow down the growth, raising provisioning requirements this month for unsecured consumer loans and levelling sanctions against banks that expand too aggressively.

The central bank has also refused to bow to pressure from Russian banks to lower its lending rates from the current 5.5 per cent, partly because of concerns it would allow banks to lend even more aggressively than they are already.

Banking executives acknowledge the central bank’s concerns, but argue they are overblown.

“There are a very small number of customers who are borrowing multiple loans from multiple banks,” says Oliver Hughes, president of Tinkoff Credit Systems. “If you take the wider picture there are no problems with the fundamental consumer lending market in Russia. Russian consumers are underleveraged, they are good payers.”

Herman Gref, chairman of Sberbank, says: “I am not concerned about any bubble. If you compare the level of household debt in Russia with that of mature markets, the conclusion is that everything is under control.”

The ratio of household debt to gross domestic product hovers around 10-12 per cent in Russia, compared with 20 per cent for emerging market peer Turkey and about 30 per cent for the Czech Republic.

Fewer than a fifth of all Russians own a credit card, and most credit is short-term with high interest rates. “The average duration of our loans is 18 months,” says Ivan Svitek, Home Credit’s chief executive in Russia. “After six payments I know with 95 per cent certainty the quality of the loan.”

Over the past few years, the Russian credit market has matured dramatically, from creation of a national bureau for credit histories to the items Russians are taking out loans for, Mr Svitek adds.

While 10 years ago Russians were borrowing to buy white goods – washing machines, refrigerators, dishwashers – now they are using retail loans to pay for everything from home refurbishment to education and healthcare.

Russia’s retail-focused lenders are heeding the regulators and cutting back growth for 2013. Tinkoff plans to expand its portfolio by half the rate it did in 2012, while Home Credit expects retail lending to grow in the central bank’s targeted 25 to 30 per cent range.

“No one wants to see what happened in the US in 2008 … Nobody wants to see 60 per cent growth. It has to come down,” says Mr Svitek, from Home Credit.

“What everyone wants to see – the central bank, the government – is more sustainable, stable growth.”

Additional reporting by Patrick Jenkins

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