ALEXEI VEDEV: “THE CENTRAL BANK SHOULD BE MORE RESOLUTE TO PREVENT THE DEBT SNOWBALL FROM GROWING

In H1 2023, the number of bank loan defaulters in Russia was equal to 17.7 mn people, an increase of 3.3 mn people over the relevant period of the previous year. Amid a marked rise in the rate of inflation and the unstable exchange rate of the ruble, the level of individuals’ real disposable cash income is disastrously low. The number of cases on collection of debts from individuals in favor of banks is steadily growing, while banks keep extending loans to knowingly financially insolvent persons, thus creating risks for themselves, their customers and the economy as a whole.

As seen from the world practice, such situation is a rather dangerous and alarming marker for the country’s entire financial sector, Alexei Vedev believes. Take, for instance, the US debt crisis of 2008 which started on the US sub-prime mortgage market and quickly turned into a global one. Over the past decade, the Russians were reassured that the share of bad loans in the overall debt was very low in Russia. But this share is not constant; it increases together with an overall debt load. It is noteworthy that interest payments alone are equal to about Rb 3 trillion a year. It is getting harder and harder for households to pay them amid high uncertainties and economic, financial and geopolitical volatility. A sudden pickup in mortgage lending is a serious risk. To get the sum of a 30% initial payment contribution (deemed safe), many people in Russia have to take consumer loans.

“With all its regulatory efforts, our Central Bank should be more resolute to prevent this debt snowball from growing. However, interest rate increases alone are not sufficient enough and additional measures aimed, for example, at limiting banks’ profits are required,” Alexei Vedev believes.