The most creditworthy Russians live in the Yamalo-Nenets Autonomous Area, in Moscow and in Chukotka, the Foundation for Civil Society Development (FoRGO) concluded after reviewing data from the Central Bank and Rosstat. Agvan Mikaelyan, Board Member of FinExpertiza audit and consulting firm, joins Invest Foresight in discussing the possible reasons why these regions are in the top three.
— If people made more money, would they also use more loans? Is saving money not part of the Russian mentality?
— I would suggest looking more closely into this research or conducting a separate study to investigate Russians’ tendency to save money or an absence thereof. But, generally speaking, I would say Russians do tend to save, at all levels. Think of our grandmothers who continued setting aside money for their funerals for their entire lives.
What we don’t do is invest our savings to generate additional income – something most people do in developed economies. Russians don’t seem to be ready for this yet. Even so, a significant number of people have been saving money and are now putting their savings on the market – admittedly, very modest savings. Naturally, those are younger people rather than our grandmothers – the average age of investors is over 30, and this age group is growing the fastest.
— Over 40 million Russians have loans; some have two or more, and spend almost 40% of their income to service their debt. Is this normal or too much?
— In fact, Russia is still very far behind Western countries in terms of retail borrowing volumes or the number of people who use loans. Overall, we are much less indebted than people on the other side of the border. The number of people who use loans is much greater in the West.
So these figures the media are trying to spook us with, pointing out how many people are in debt and how much they owe – are just a pale shadow of the Western world.
— So how many people have loans in the West?
— As far as I know, there are practically no people in the West without any loans at all. They start borrowing at a young age, for example to pay their way through school and college.
I don’t have exact figures, but again, we are far behind the West in terms of the amount owed, as well as by the number of people who fail to make regular payments or actually default on their loans. Even with the recent trend to use loans, the average loan amount in Russia is still less than in the West.
— There is evidence that people in the West spend about 60% of their income on loan payments. But they can do this because the economic situation is generally more stable; they can keep paying up 60% of their income for a long time and they know this won’t change. They can make plans…
— No, this isn’t the issue here. One can want to get a bank loan if this is the way they prefer living, but their bank will not always approve that loan. Russia has much stricter rules for borrowing; this is the first point. The Central Bank keeps giving banks trouble – in the good sense of the word – warning them of what the regulator sees as excessive private debt load. In Europe, for example, this has not been done for a very long time, and living on credit is the norm there. At the same time, incomes in Europe are rather high and yet, people live on loans because they want to consume today, right now and right here. It is the main principle of the consumer society: no need to live within one’s means. I can take out a loan and fulfil my wish if I want to.
Although in a global sense, this matter of loans is not unlimited, if we consider state policy. Russians remember 2008 when the entire world experienced a rather serious economic crisis as a result of excessive second-lien mortgage loans.
— Sevastopol accounts for the smallest share of non-performing loans (below 2%) and Ingushetia for the largest share (10.4%). In most regions (70), the amount of bad loans is under 5% and the top five regions have less than 3%. Does this indicate the population’s high financial literacy or are there other reasons for such small numbers?
— By no means, it is an indication of high financial literacy. Our people are less used to taking out loans and consider them a problem. This wariness and unwillingness to borrow is an internal instinct. In Russian and recently Soviet mentality, the words “loans” and “market” are synonymous to financial bondage that one should get rid of as soon as possible.
This is one reason why our people are so disciplined when it comes to paying off debt and do not take out loans for just anything while in Western countries, taking out a loan is neither a problem nor a big event. Taking out a loan in Russia is both a problem and a big event, caused substantially by the internal patriarchal nature of our society.
It should be noted that, when it comes to sizable loans, the share of non-performing loans is unbelievably small. Societies like Russia – where a person will not take out a loan if they understand that there is a risk of not being able to pay it back – are few and far between.
— The Central Bank has raised the key rate by 1% to 8.5% per annum. Will this measure seriously affect interest in loans? What are you expecting from the loan market in the short term?
— Any increase in the key rate causes loan interest rates to go up. Consequently, the number of people interested in loans always goes down. Our society is very sensitive to such developments.
As soon as a person realizes that a loan may turn out too expensive, they would rather postpone a loan-funded purchase. As soon as the key rate is lowered, people rush to get loans even if they just want to buy a kettle or a TV. Russia has a serious underconsumption problem as people still lack many ordinary household appliances. Low incomes prevent them from taking advantage of all items at once so loans can help. Nevertheless, people are still quite cautious about this financial instrument and borrow extremely carefully.