MOSCOW — Yekaterina V. Bulgakova gushed about the cozy one-room apartment that she and her boyfriend share, and particularly about the way they could always cover the rent: by charging it on credit card.
“Our salaries don’t go far enough” to pay for housing, food and other necessities every month, Ms. Bulgakova, a tattoo artist, said.
She earns about 35,000 rubles, or $560, a month, which she considers a good paycheck for a young person. Her boyfriend, a naval cadet, receives a monthly military stipend of $480. Together, their income is above the average monthly wage in Russia of about $735, and it usually covers their expenses. But every few months, Ms. Bulgakova has a drop in business. That’s when she relies on her credit card from Tinkoff, a large private bank.
“Nobody wants to go into debt,” Ms. Bulgakova, 21, said. Yet millions of Russians like her are doing just that, spurring a boom in consumer lending.
The growth in such lending has alarmed some economic policy officials, who note that a growing number of Russians are using a quick swipe of plastic or relying on payday lenders to cope with hard times brought on by Western sanctions and slumping prices for oil, one of the country’s major export commodities. The spending has lifted the economy but with ballooning consumer debt that could help start a recession.
Since the onset of Russia’s military interventions in Ukraine and the ensuing sanctions, total outstanding personal debt among Russians has roughly doubled, according to the country’s central bank. Outstanding average debt per person has reached about $3,300, according to the National Association of Professional Collection Agencies, a trade group whose membership has grown by a third since the crisis began in 2014.
Some independent and government economists say that the personal credit industry has found a mother lode in a population that was wholly debt-free when it entered the capitalist era a generation ago. Others warn that the industry’s expansion is unsustainable.
Many first-time credit card users have little experience managing debt. And with Russia facing other economic woes, these spenders are also seeing their inflation-adjusted salaries decline.
Elvira S. Nabiullina, the central bank’s chairwoman, has played down the problem while also imposing some regulatory restrictions to slow consumer lending. “It’s absolutely wrong to think that already now we have risks to financial stability or a risk of a bubble,” Ms. Nabiullina said at an economic conference in St. Petersburg last month.
The central bank has tried to cool the market by raising so-called provisioning requirements that dictate how much money banks must set aside to insure against defaults and by capping the amount of interest that payday lenders can charge at 1 percent per day, still a steep 30 percent a month.
Debt payments are taking a bite out of some slim paychecks: Low-income households spend an average of 8 percent of their monthly incomes on debt payment, according to the central bank. Surveys show that most borrowers are 25 to 35 and that they are taking more than three loans from different sources, according to Vladimir Tikhomirov, the chief economist at BCS Global Markets.
There were warnings from others at the St. Petersburg conference, where Russian officials laid out their economic priorities for the year. Andrey R. Belousov, an economic adviser to President Vladimir V. Putin, said the debt market was “overheating.” Maksim S. Oreshkin, the minister of economy, warned that the surge in short-maturity consumer debt could bring on a recession within two years.
“You had a similar story in the United States,” with debt rising faster than salaries before the recession in 2008, Mr. Tikhomirov said.
In the first quarter of 2019, real incomes fell 2.3 percent from the same period a year earlier. Over the same three months, the amount of newly issued unsecured consumer debt rose 22 percent.
Consumer lending in Russia, as elsewhere, benefits the economy by sustaining consumer demand. The lending boom may have prevented a recession in the first quarter, according to a central bank report published in June. State-owned banks issued the bulk of this credit, about 70 percent, the report said, suggesting that the Kremlin has at least partly endorsed the rise in consumer lending.
For some Russians, personal debt is akin to the garden plots of their parents’ generation. In that era of post-Soviet economic depression, many families short on money grew their own food, transforming their kitchens into storerooms of pickled vegetables, dried mushrooms and sacks of homegrown potatoes.
Despite the wretched poverty of those years, Russians entered the country’s capitalist era with some advantages. Families had no debt, and virtually every adult wound up owning the property where they lived. But they were also unschooled in matters of lending or in calculating reasonable levels of debt. And they were unprepared for a rush of predatory lenders offering quick loans burdened with high rates.
At the end of 2018, there were 2,002 payday lending companies in Russia, with many operating from storefronts in provincial towns and offering one-month loans with interest rates compounded daily. Established banks joined in, offering loans and credit cards with quick approvals.
Igor Kostikov, chairman of the Union for Protecting Financial Consumers, an advocacy group for debtors, said that poor Russians were accumulating payday-lending debt. “They are getting deeper and deeper in trouble,” he said. “The poorest will not be able to repay.”
On Vkontakte, a social media site, Russians swap stories of debt and bankruptcy, revealing the naïveté of their experience with debt.
One user, who identified herself as Helga, wrote seeking free legal advice. “Respected lawyers! I have an opportunity to take a loan of three to five million” rubles, or $48,000 to $80,000. “If I take it out, pay a few times, and then declare bankruptcy, what problems might arise?” She mused about possibly using the money for a down payment on a home.
Helga’s optimism might be crushed if she considered the realities of debt collection. Russian debt collectors are notoriously violent. The state allows court bailiffs with minimal oversight to enter homes to confiscate televisions or other valuables to offset debts. Scofflaws face harsh punishment, including a ban on foreign travel.
Ms. Bulgakova knows credit can cause trouble, but she and her boyfriend believe that they can stay afloat. She likened their experiment with debt to her approach to tattoos. “We are trying this out on our own skin,” she said. Credit has helped them afford their St. Petersburg apartment, and comfort is important in these uncertain times. So far, she has paid off her debts promptly.
“I want to say thanks that I can at least keep up this lifestyle” by using credit, she said. “But it would be better if I didn’t have to.”
Source: Russians Pulling Out Credit Cards, and Consumer Debt Spirals