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What can help Russians out of loan trap?

April 20, 2015, 18:12 UTC+3 Alexandrova Lyudmila
© ITAR-TASS/Dmitriy Rogulin

MOSCOW, April 20. /TASS/. Russians’ loan debts to banks keep growing, while the strained situation in the economy often leaves borrowers no chance to make payments on time. According to the daily Novyie Izvestia, the debt of 4% of the borrowers is dozens of times higher than the average monthly earnings. The situation is quite unpleasant, but not catastrophic yet, analysts say.

"At the moment there are 40 million borrowers in Russia who have taken a total of 78 million loans," the daily quotes financial ombudsman, Pavel Medvedev as saying. "Of this amount 15% are in default."

Twenty percent of the respondents polled by the debt collector company Sequoia Credit Consolidation say they cannot pay the loan back because they have lost their jobs, and 15% say they have suffered wage cuts.

The aggressive growth of consumer lending in 2010-2013 caused a considerable increase in the debt burden on the population. Half of Russia’s borrowers take consumer loans with very short repayment terms and super-high interest rates. The number of those having three, four or five loans to pay back is growing. Each consecutive loan is taken to repay the previous one.

Yet the situation is not so bad as it might seem, research fellow at the Structural Analysis Centre of the presidential academy RANEPA, Mikhail Khromov, has told TASS. According to the specialist, Russians’ overall debt to banks on loans taken to pay the mortgage or buy consumer goods or motor vehicles stands at 11.5 trillion roubles (about 230 billion US dollars). Since the beginning of 2015 overdue retail loans in Russia have been up 14% to 842 billion roubles (about 16.7 billion US dollars). On April 1, Khromov said, overdue loan debts accounted for 7.1% of the overall indebtedness. During the 2010 crisis the rate at times rose to 7.7%.

This time, Khromov warns, things may get worse.

"We are still in the process of sinking into the crisis and in a far worse conditions. During the previous crisis the problem was tackled differently. Some debts were rescheduled, others written off, and the hopeless ones sold to collector agencies. The law on individual’s bankruptcies due to take effect this year probably facilitate the solution of the problem."

"The situation is complicated. People’s incomes are shrinking, and debts soaring. Banks make lending terms ever harsher," leading research fellow of the Central Banks Studies Centre at the presidential academy RANEPA, Pavel Trunin, told TASS. The expert sees no disaster on the horizon, but the situation is rather strained "by virtue of the general state of affairs in the economy."

The deputy chief of the Finance, Monetary Circulation and Credit chair at the RANEPA academy, Aleksandr Khandruyev, points to the fact that the amount of overdue debts in Russia is lower than in the advanced countries during the crisis.

Non-payment on loans is not a disaster for banks, he says. "Shortage of capital is a far more serious problem for banks. In general, the overall share of retail loans in Russia is rather small in contrast to what can be seen in the advanced countries - 15%-20% of all lending. As for credits issued to legal entities, there are overdue debt problems, too: 5%-7%, but that is normal."

Experts believe that two laws will improve the situation considerably: one, on the bankruptcy of individuals, effective as of July 1, and the other, on the financial ombudsman, which is still in the drafting phase. One concerns the rescheduling of debts larger than 500,000 roubles, and the other, smaller ones. In the former case the rescheduling will be done by a judge, and in the latter, by the financial commissioner. It will give a chance to postpone a settlement of the debt for some time.

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