Credit Disorganization

// Russia’s population overdue debts reached the threshold
Central Bank of Russia yesterday published data on overdue debts of 30 major Russian banks. The data proves that the amount of ‘bad debts’ doubled in 2006. Market players estimate that the real level of arrears is close to critical, making up 4-7 percent in banking sector on the whole, and 20-30 percent in non-mortgage kinds of crediting. Experts think it is possible to avoid the crisis only by diversifying banks’ crediting business.
Central Bank of Russia yesterday published summary statistical information on 30 major banks as of January 1, 2007. By January 1, 2006, individuals’ overdue debts to banks reached a little over 10 billion rubles. By January 1, 2007, this figure more than tripled, reaching nearly 33 billion rubles. In percentage ratio with total amount of private crediting, debt arrears in 2005 made up 1 percent, while in 2006 it was already 1.94 percent, that is nearly two times more.

Central Bank included the following 30 banks into its list: Ak Bars, Alfa-Bank, Zenit, Bank of Moscow, Binbank, VTB and VTB-24, Vozrozhdenie, Gazprombank, Impexbank, Raiffeisenbank Austria, Sibakadembank, MDM-bank, International Moscow Bank, International Industrial Bank, Uniastrum Bank, Nomos-Bank, Petrokommerts, Promsvyazbank, Promstroybank, Rosbank, Rosselkhozbank, Russky Standart, Sberbank, Svyaz-Bank, Citibank, Sobinbank, Transkreditbank, Trust, and Uralsib.

Experts believe the numbers obtained by Central Bank do not reflect the real state of affairs in the banking sector, and say the actual situation is much worse. Thus, according to official IFRS accounting of a leading express-crediting bank Home Credit & Finance, the level of its ‘bad debts’ is about 15 percent, while Rusrating agency has the same data closer to 30 percent.

The reason for arrears growth might be aggressive policy of the banks. “It was in 2006 that the qualitative saturation of unsecured credit base in retail services took place,” explained Sergei Galkin, banking sector analyst of Kapital investment group.

Central Bank has repeatedly expressed concern about the growth of non-repayment risks in retail crediting sector. However, the Bank was so far able just to oblige banks to disclose effective credit rate since July 1, 2007. Meanwhile, the goals of Central bank and other banks are different from the outset. “The aim of a bank’s retail activities is not to minimize arrears, but to maximize profits at a certain level of arrears,” said Mikhail Matovnikov, director general of Interfax agency. “Drastic reduction in risks might lead to a drop in profits. On the contrary, Central Bank’s goal is to minimize risks in banking sector.”

Analysts see the solution of the current situation is in diversifying retail business by means of less risky sectors. “This trend has already appeared on the market. However, its result will come only in long-term prospective,” believes Rusrating analyst Viktoria Belozerova.
www.kommersant.ru
All the Article in Russian as of Feb. 13, 2007