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Capital Markets

Russian retail lending growth sparks overheating fears

Fitch sounds the alarm over unsecured consumer lending boom as household incomes stagnate.

A sharp rise in retail lending in Russia over the last 18 months has raised fears that the sector could be heading for a second crisis in less than a decade.

Growth in the segment came to a standstill in 2014, as falling oil prices exacerbated the effects of the bursting of a post-financial crisis consumer finance bubble.

Over the last three years, however, lower interest rates and returning consumer confidence have fuelled a revival in demand, while widespread corporate deleveraging has prompted the country’s banks to look for new growth opportunities.

Russia’s retail loan stock increased by close to 20% last year. At the same time, real household incomes – which have stagnated in Russia since 2016 – slipped into negative territory.

 Alexander-Danilov-160x186
Alexander Danilov,
Fitch Ratings 

Alexander Danilov, a bank analyst at Fitch Ratings in Moscow, says this is a dangerous combination.

“Economic growth is limited and incomes are not rising, which means existing borrowers are becoming more leveraged,” he says. “If this trend continues, we could have overheating in the medium term, which could result in another spike in credit losses

, especially on unsecured consumer finance loans.” He adds that lenders have failed to learn lessons from the bursting of Russia’s previous consumer finance bubble in 2013/14.

“After that crisis, they reduced loan issuance, reduced acceptance rates and improved underwriting,” he says. “Banks have very short memories, however, and now we’re back to fast growth and relaxed underwriting standards.”

The rapid increase in uncollateralized lending has also rung alarm bells at the Central Bank of Russia (CBR). Bank officials note that unsecured retail loans amount to 7.3%

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