Car dealers and electronics shops are not far behind. The consumer boom is largely facilitated by banks that are granting easy credits to their customers. But increasing sales of goods bought on credit has been accompanied by a growth in the share of overdue loans. However, this does not yet pose a threat of upheavals to banks. Russia's credit history is only gaining momentum.
Taking out credit for the purchase of a car, television set or cell phone has recently become routine in Russia. The consumer behavior of an average Russian citizen is changing before our eyes. Several years ago people tried to save money for the purchase of a coveted thing, but now buying on credit is common practice. In the last seven years the value of purchases made on credit has grown 80-fold, from 27.6 billion rubles in 2000 (1.01 billion euros at the then exchange rate) to 2,233 billion rubles (64.3 billion euros) as of April 1, 2007. The value of overdue credit has reached 7.7% of Russia's GDP.
Many economists admit that in Russia growing consumption is the most effective booster for banking and the economy as a whole. For a long time, consumers' demand for everyday goods was not satisfied - at different times for different reasons. Sometimes, the required commodities were in short supply, and sometimes people did not have enough money to buy them. A sharp increase in incomes over the last few years has allowed Russian people not to think about expenses for housing and foods. The opportunity to get credit on sensible terms is yet another incentive for spending money on consumer goods.
People in Russia are more and more willing to borrow money. The current desire to buy, even on borrowed money, prevails over the former passion to save. Bank deposits are increasing much slower than the amount of credit granted. In the last three years, the former have been going up at a rate of 30%-40% and the latter at 75%-100% a year. In 2000, the volume of bank deposits was 10.8 times greater than consumer credit, whereas today it is only twice as big. In a few months, they will even out.
As I have already mentioned, bad debts are growing, too, and much faster than credit. Swindlers are not wholly to blame for this situation. A lack of financial know-how prevents some people from correctly assessing their purchasing capacity. As a result, in the last few years, the amount of bad debts has been steadily increasing by 50% a year.
In the first three months of 2007, they went up by 23.1% to reach 66.1 billion rubles (1.9 billion euros), or three percent of all credits. These are the official estimates of the Russian Central Bank. Any credit that remains unpaid for more than three months is qualified as bad debt. But quite often banks deliberately undervalue such debts to make their balance sheets look better. Having a lot of bad debt spoils the image of banks and makes them look unreliable.
Nevertheless, experts say that banks suffering from unpaid loans are far from panicking. First, consumer credit is a relatively new thing in Russia. It accounts for a mere 21.4% of all credit given by banks. In the estimate of VTsIOM, a Russian public opinion study center, only every fifth Russian has used a bank credit. The average per borrower debt in Russia is only 15,400 rubles (442 euros). Moreover, the share of bad debts in the assets of Russian banks is merely 0.6% of the overall amount of credits granted by banks to individuals and businesses.
Every Russian bank is going all-out to occupy a strong position in the retail credit market, which is seeing double-digit annual growth. Against this background, bad debts are not so bad after all, and banks are not going to toughen their terms for awarding credit. Despite all the risks, Russians are not likely to stop taking out credit, either.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
