50 million Russians live in debt: what risks does a high debt burden of the population pose?

Accelerating inflation, rising bad debts and destabilization of the banking sector

The debt load of Russians has reached unprecedented heights, jumping last year by 6.4 trillion rubles to 34.8 trillion. This is comparable to the country’s annual budget. The situation looks like a dangerous anomaly: judging by official statistics from the Central Bank, in addition to the increasing debt burden (coupled with growing consumer demand for goods and services), the ability of people to service the loans they have taken is also deteriorating. As a result, a whole bunch of risks arise – for the population, for banks, and for the economy as a whole.

The number of citizens who use credit products in banks and microfinance organizations has reached 50 million, the Central Bank reported. This is 40% of the total adult (over 16 years old) population of the country. According to the regulator, over the year, borrowers with only bank loans increased by 4.3 million people (+11%), and MFO borrowers by 500 thousand.

Individuals with three or more loans account for half of all retail loan debt. A year ago the figure was 44%, and in 2022 it will be less than 40%. The number of such borrowers over the past year has increased by 2.7 million, from 25% to 28% of the total number. Moreover, 60% of them are mortgage holders. The average amount of debt on a consumer loan increased to 950–970 thousand rubles. In addition, the regulator notes, loans have become more often issued to citizens from older (over 40 years) age groups.

How unpredictable and dangerous is such a situation in Russian realities? In Western economies, the share of the population with debt to the banking sector can reach up to 70-80% of the total, but this is balanced, firstly, by lower interest rates on loans, and secondly, by a higher level of income and savings (free money) themselves. borrowers.

“In principle, living on credit is an absolutely normal global trend,” says Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. – Thus, Switzerland has the highest indicator in the world in terms of total household debt relative to the country’s GDP: there it is 126%. In Denmark the figure is 115%, in Australia – 110%, in South Korea – 102%. Even China has 62.4%. Against this background, Russia with its 22.5% looks great. However, in addition to the presence of debt as such, the ability to service it is important: that is, make the next payment and leave yourself the amount for a comfortable life.”

And here the interest rate plays a major role. If in Western countries the overpayment on a loan does not exceed 1-5% per annum, then in Russia, taking into account the high key rate of the Central Bank, it turns out to be a multiple, reaching 15-20% per annum. The winners are the banks, not the people, Schneiderman notes. Credit products with state participation (various types of preferential mortgages) partially correct the situation, but they are not available to everyone.

“Trends in the economy are sometimes much more important than absolute numbers,” says Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. –The total debt burden of the population is growing at a high rate: 6.4 trillion rubles in last year alone is a lot. The Central Bank’s concern in this case is related to the risks for the banking system: at some point, a mass of overdue debts that is critical for the sector may accumulate. People continue to actively take out loans in order to maintain the level of consumption to which they were accustomed during the well-fed 2000s. At the same time, between 2013 and 2023, real disposable income stagnated.”

In the opinion of Alexei Vedev, director of the Center for Structural Research at RANEPA, the situation is extremely unpleasant: in addition to the total household debt of 34.8 trillion, we must not forget about interest payments, which exceed 3 trillion rubles. A very unique model has developed in Russia: on the one hand, the volume of bank deposits of individuals is growing at a record level, and on the other hand, the demand for goods and services is growing. This suggests that the consumer market is distorted: it is unlikely that the same people borrow and save at the same time. Most likely, Vedev suggests, the diversification of the population in terms of income is increasing. These processes carry at least two risks: acceleration of inflation and growth of bad debts, fraught with destabilization of the banking system.