Growth in unsecured retail lending in 2023 may reach 15-20%

The growth of unsecured retail lending in 2023 may reach 15–20%. Central Bank regulation has only a limited impact on the segment: retail banks are predominantly well capitalized for such growth rates. However, in the absence of income growth, the rapid dynamics can turn into problems, experts warn.

According to the results of March-April 2023, the monthly increase in the portfolio of consumer loans is above 1%, according to the analytical commentary of the ACRA rating agency. Such dynamics have not been observed since November 2021. According to the Central Bank, by the end of April 2023, the portfolio of unsecured retail loans exceeded 12.4 trillion rubles, while by the beginning of 2023 it was less than 12 trillion rubles.

The need for funds is high, and measures to contain the growth of debt load are not effective enough or deliberately limited, says Yury Belikov, Managing Director for Validation at Expert RA. The growth in lending can be explained by the effect of pent-up demand, says Yegor Lopatin, deputy director of the NKR financial institutions rating group: “The borrowers could have less uncertainty in the future, and the savings behavior model was replaced by a consumer one. The trend could pick up on the weakening ruble in February-April, which led to higher prices for durable goods, the purchase of which was postponed last year. According to the latest data from the Central Bank, in the second quarter, consumer activity is above the regulator’s expectations, and the propensity to save is declining.

As consumer activity returns, the habit of living on credit will capture an increasing proportion of the population, ACRA believes.

According to analysts, in 2023 the growth of unsecured consumer lending will exceed 15%, and if conditions remain stable, it could reach 20%. This is slightly higher than the expectations of the Central Bank, which predicts the growth of the unsecured retail loan portfolio in 2023 at the level of 8-12%.

According to Egor Lopatin, if macro conditions do not worsen, we can expect moderate dynamics of consumer lending in the medium term, and by the end of the year the portfolio may add 12–15%. “On the one hand, the growth of consumer lending is observed when the population feels confident in the stability of their income and is ready to buy now and pay later instead of the “save, buy later” approach,” says Anastasia Terekhina, partner at the FBK audit and consulting company. However, she draws attention, in general, the incomes of the population are falling against the backdrop of rising consumer prices: “In fact, now there are applications for consumer loans for current necessary needs, and not some big purchases, funds, which used to be enough, and people go to the bank.”

For banks, work in the unsecured retail segment continues to be very profitable, while the quality of the portfolio is acceptable. According to ACRA, banks specializing in this area, in the first quarter of 2023, showed an average higher return on assets compared to the market.

Experts do not yet expect a clear increase in problem loans. The share of overdue debt in unsecured lending by the end of the first quarter of 2023 was 8.7%, against 8.8% at the beginning of the year. According to ACRA estimates, the quality of the unsecured portfolio will not change significantly during 2023.

But, Mr. Belikov notes, if conditions are not created for the growth of real incomes, which would be comparable to last year’s inflation and the increase in the debt burden of the population that has already occurred, the consequences of high rates of consumer lending will be negative both from a social and economic point of view. In particular, according to Rosstat, the real disposable income of Russians in the first quarter of 2023 increased by 0.1%.

Growth in the consumer lending market can be objectively assessed over time, when the credit quality of loans issued during this period will be seen, as well as trends towards further growth or decline in issuance, Ms. Terekhina believes. When new lending slows down, and this is likely to happen already this year as the solvent part of demand decreases, Yuriy Belikov adds, they will no longer dilute the delinquency, and its share in the portfolio may increase significantly.

Olga Sherunkova