credit to the economy is growing too fast

According to the Central Bank, in August, credit to the population increased by 979 billion rubles. (RUB 4.1 trillion since the beginning of the year) is a 3.2% increase over the month and 20.7% in annual terms. Mortgages (especially preferential ones) grew the fastest amid rising market rates and the expected tightening of regulation. “Issuance of preferential loans increased by almost 40%, to 507 billion rubles. At the same time, the issuance of both “Family Mortgage” (RUB 232 billion) and “Preferential Mortgage” (RUB 226 billion) increased. Issues of market mortgages grew slightly less – by about 20% (RUB 342 billion),” the Central Bank notes.

Consumer lending also grew rapidly (by 2.4% in August and 14.4% in annual terms). The Central Bank says that this may be due to the holiday season and preparations for September 1. “Seasonality in the dynamics of consumer lending is not pronounced, and the main reason for the still large volume of issued funds may be a surge in the rush demand for loans before conditions change. In addition to the lag effect of monetary policy, the tightening of macroprudential conditions (from October 1) should be an important cooling factor before the end of the year,” Raiffeisenbank analysts say. “The credit market will begin to cool in October, but in September we will still see high indicators,” agree analysts of the MMI Telegram channel. “We shouldn’t expect a significant drop in the pace. Lending to individuals is a highly profitable banking asset, and banks will strive not to reduce supply. The Central Bank will again resort to easing if the availability of loans decreases and the level of consumer demand falls,” the RANEPA Institute of Economic Research believes.

Recent estimates by the Center for Early Warning of macrofinancial risks indicate a high probability of a systemic banking crisis (until August 2024) and systemic credit risks (until October 2023). The reason is the credit expansion of banks (an increase in the ratio of the total volume of loans to households and enterprises to GDP). “A long-term increase in the debt burden on the income of economic agents can lead to an increase in the risk of non-repayment of loans (primarily in terms of consumer lending),” notes the Central Bank of Ukraine. In the medium term, the accumulation of credit risks will be facilitated by a combination of a sharp increase in the key rate with a tightening of macroprudential measures by the Central Bank against the backdrop of low quality of new retail loans.

Artem Chugunov