Protracted Crisis

The total amount of loans to Russians, both consumer and mortgage, is 9.23 trillion rubles. The most complicated situation is in mortgages. According to the “United Credit Bureau”, the number of late payments on mortgages in the third quarter of this year increased by 3.7%. The amount of debt of Russian citizens to banks for mortgage loans amounted to 160 billion rubles.

Rosbalt spoke to the director of the Institute of Strategic Analysis, Igor Nikolaev:

How serious is the problem of defaults on loans for our economy?

“The debt is significant,” Nikolaev acknowledges, “the problem is in a frozen state, but it will not go away, it is not resolved, the situation has simply now become a bit better.”

However, he continues, “if the economic situation were to deteriorate again… then, of course, this problem will also manifest itself in a more explicit form.” He mentions another weakening of the rouble, or the rapid decline in real income as factors.

An added problem is that people have begun borrowing again, but this time in “consumer credit”.

“This is celebrated as a positive trend….” but, he says, “I think that the risks are high, because problems remain in the Russian economy.”

Rosbalt calls Nikolaev out on his claim that there has been “some improvement in the situation in the Russian economy.”

“Can you clarify in what area, because apart from the stabilization of the ruble… there is nothing, at least outwardly, that has changed in a positive way.”

Nikolaev replies:

“Well, I already mentioned the growth of consumer credit. This is noted by “Sberbank” and other credit institutions. This is information from August-September. With regard to the whole economy, it is not falling now as it fell in 2015. That is, some stabilization is observed.”

Rosbalt moves on, asking about mortgages. Many Russians, during the good years, took out mortgages in foreign denominations (particularly US dollars).

Nikolaev replies:

“There is also a frozen state, although some intensification of mortgages is taking place. But the situation with the foreign currency mortgage is not exactly resolved.”

It has gotten a bit better because the ruble has gotten slightly stronger, he notes. “But if it gives way again, the problem will arise again with the same sharpness.”

Rosbalt asks about the situation with the ruble:

“It is not clear why the ruble strengthened, given that oil remains at the same level.”

Nikolaev disagrees, saying:

“Well, the price of oil has soared. If you recall that it was $35 a barrel, and now it is more than $50 [note: Brent today is ~$49 a barrel].”

He also notes that the Russians and OPEC are playing the market with their talks of an oil production freeze.

“In addition, the role played by the action of the Central Bank to raise reserve requirements on foreign currency deposits (the so-called devaluation of bank assets). This policy, which has been carried out since the winter of 2016, is not advertised, but it has had a strong influence on the currency, playing a large role in strengthening the ruble, as it becomes less and less profitable for banks to attract foreign currency loans.”

And finally, Nikolaev says, the US Federal Reserve has not increased the refinancing rate.

Meanwhile, current proposals to fix the situation facing foreign currency borrowers are only temporary while “the crisis has taken on a protracted nature.”

Instead, Nikolaev tells Rosbalt, the burden rests with the Central Bank, “because the stability of the national currency was not provided at the time.”

So foreign currency mortgage holders could say that while they took out loans in a foreign currency, “the State did not ensure the stability of the ruble.”

Then, he says, these people could be compensated in some way “for lost revenues by State banks when translating foreign currency mortgages into rubles”.

“Naturally, it would not be a total payment, and a heavy financial burden will remain on the borrowers, but such a move would be important as a precedent. Because when the government says “it’s not my business,” I believe that this is also wrong.

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