Risks of increased loan arrears identified

Economist Nikolaev: “For many, endless life from one loan to another has become the norm of existence”

The total amount of debts that are subject to collection from individuals in favor of banks reached 3.26 trillion rubles. Over the year, the figure increased by more than 200 billion, the Federal Bailiff Service reported. The problem associated with the category of persistent defaulters would not be so acute if not for one circumstance. Namely, volumes of all types of lending are still growing in Russia, despite the efforts of the monetary authorities to cool this market. At the same time, the share of “bad” debts is growing.

Over the past year, according to the Central Bank, the total volume of credit debt of citizens to banks reached 33.7 trillion rubles compared to 27.4 trillion in 2022. That is, it grew by 23%. According to FSSP statistics, 24.6 million proceedings to collect debts from individuals were subject to compulsory execution. This is 4.5 million more than in 2022. For comparison, in 2021 there were 16.1 million, in 2020 – 12.9 million.

Lending growth occurred in all retail segments, mainly in mortgages (+27%) and car loans (+36%). According to experts, consumers sought to satisfy the pent-up demand of 2022: then, against the backdrop of a shortage of certain goods (in particular, cars), as well as high uncertainty in the economic situation, many consumers switched to savings mode.

In 2023, both banks and individuals seemed to have broken free. The former, without blinking an eye, provided loans to often obviously financially insolvent clients, the latter uncontrollably acquired loans – two, three or more. The bubble of bad debts began to inflate quickly. The authorities, it seems, were not particularly worried about this situation, and only the Central Bank tried to somehow cool the market by introducing various kinds of regulatory restrictions. As the FSSP stated in November, forced repayment of bank loans “is hampered by the low solvency of citizens with arrears in taxes and payments for housing and communal services, as well as their debt load.”

In general, initiating enforcement proceedings is a last resort measure. Financial organizations themselves are absolutely not interested in the implementation of this scenario, which damages their reputation. They try to use all the tools for pre-trial settlement, regardless of the amount of debt: finding the optimal payment amount, restructuring, writing off interest and fines. As for defaulters, they risk a lot, a lot: bailiffs can block and seize current accounts, a car or other property, and then sell them at auction to cover the debt. People will not be allowed to leave the country; they are guaranteed to have problems finding employment and doing business.

“There is a fundamental reason for the growing inability of borrowers to pay banks,” says Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. – Some citizens are trying to maintain the standard of living and consumption to which they were accustomed in previous times, especially in the 2000s, when oil was expensive. The logic is simple: if you can’t earn more, the bank will always help out – with borrowed money. As a result, for many, this endless “life on borrowed money,” from one loan to another, has become the norm of existence, with all the ensuing negative consequences.”

This is a time bomb for the entire banking system: despite the serious margin of safety, it needs to somehow compensate for the liquidity deficit. The economy as a whole also suffers: with more loans, the population spends even more, stimulating inflation.

“As practice shows, several enforcement proceedings can be opened against one willful defaulter,” notes financial analyst and private investor Fedor Sidorov. – Accordingly, we can definitely only say that the volume of arrears is growing, and not the number of holders of such debts. The main reason is obvious – the fall in real disposable income. Low solvency makes it difficult to pay taxes, housing and communal services and other obligatory payments on time.”

As a result, Sidorov summarizes, people take out loans to pay off current obligations. Then – again and again. This vicious circle is a natural consequence of economic difficulties, high inflation, increased financial and geopolitical uncertainty and turbulence. The situation is still far from critical, but in the long term it does not bring anything good to the country: the total debt burden will grow, and the mass of outstanding debts will accumulate, approaching critical.