Consumer debt soars as Russians turn to easy credit

Moscow

YEKATERINA Bulgakova gushed about the cosy one-room apartment she and her boyfriend share, and particularly about the way they could always cover the rent: by charging it on credit card.

"Our salaries don't go far enough" to pay for housing, food and other necessities every month, Ms Bulgakova, a tattoo artist, said. She earns about 35,000 rubles (S$740) a month, which she considers a good pay cheque for a young person. Her boyfriend, a naval cadet, receives a monthly military stipend of US$480.

Together, their income is above the average monthly wage in Russia of about US$735, and it usually covers their expenses. But every few months, Ms Bulgakova has a drop in business. That's when she relies on her credit card from Tinkoff, a large private bank.

"Nobody wants to go into debt," Ms Bulgakova, 21, said. Yet millions of Russians like her are doing just that, spurring a boom in consumer lending. The growth in such lending has alarmed some economic policy officials, who note that a growing number of Russians are using a quick swipe of plastic or relying on payday lenders to cope with hard times brought on by Western sanctions and slumping prices for oil, one of the country's major export commodities. The spending has lifted the economy but with ballooning consumer debt that could help start a recession.

Since the onset of Russia's military interventions in Ukraine and the ensuing sanctions, total outstanding personal debt among Russians has roughly doubled, according to the country's central bank.

Outstanding average debt per person has reached about US$3,300, according to the National Association of Professional Collection Agencies, a trade group whose membership has grown by a third since the crisis began in 2014.

Some independent and government economists say that the personal credit industry has found a mother lode in a population that was wholly debt-free when it entered the capitalist era a generation ago. Others warn that the industry's expansion is unsustainable.

Many first-time credit card users have little experience managing debt. And with Russia facing other economic woes, these spenders are also seeing their inflation-adjusted salaries decline. Elvira Nabiullina, the central bank's chairwoman, has played down the problem while also imposing some regulatory restrictions to slow consumer lending. "It's absolutely wrong to think that already now we have risks to financial stability or a risk of a bubble," Dr Nabiullina said at an economic conference in St Petersburg last month.

The central bank has tried to cool the market by raising so-called provisioning requirements that dictate how much money banks must set aside to insure against defaults and by capping the amount of interest that payday lenders can charge at 1 per cent per day, still a steep 30 per cent a month.

Debt payments are taking a bite out of some slim pay cheques: Low-income households spend an average of 8 per cent of their monthly incomes on debt payment, according to the central bank.

Surveys show that most borrowers are aged 25 to 35, and that they are taking more than three loans from different sources, according to Vladimir Tikhomirov, the chief economist at BCS Global Markets.

There were warnings from others at the St Petersburg conference, where Russian officials laid out their economic priorities for the year.

Andrey R Belousov, an economic adviser to President Vladimir Putin, said the debt market was "overheating". Maksim Oreshkin, the minister of economy, warned that the surge in short-maturity consumer debt could bring on a recession within two years.

"You had a similar story in the United States," with debt rising faster than salaries before the recession in 2008, Mr Tikhomirov said.

In the first quarter of 2019, real incomes fell 2.3 per cent from the same period a year earlier. Over the same three months, the amount of newly issued unsecured consumer debt rose 22 per cent.

Consumer lending in Russia, as elsewhere, benefits the economy by sustaining consumer demand.

The lending boom may have prevented a recession in the first quarter, according to a central bank report published in June. State-owned banks issued the bulk of this credit, about 70 per cent, the report said, suggesting that the Kremlin has at least partly endorsed the rise in consumer lending.

For some Russians, personal debt is akin to the garden plots of their parents' generation. In that era of post-Soviet economic depression, many families short on money grew their own food, transforming their kitchens into storerooms of pickled vegetables, dried mushrooms and sacks of homegrown potatoes.

Despite the wretched poverty of those years, Russians entered the country's capitalist era with some advantages. Families had no debt, and virtually every adult wound up owning the property where they lived. But they were also unschooled in matters of lending or in calculating reasonable levels of debt.

And they are woefully unprepared for a rush of predatory lenders offering quick loans, saddled with high interest rates. NYTIMES