Russia’s central bank fears new payday lending bubble

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Russia could be in the middle of a payday lending bubble as struggling households take on short-term, high-interest debt as they emerge from the coronavirus recession, a central bank representative told lawmakers on Monday .

“This year we are already seeing a fairly rapid growth in the debt burden of individuals, and in some places we can even talk about bubbles,” said business daily Vedomosti citing Ksenia Yudayeva, the first vice president of the Bank, to the financial committee of the State Duma. in a hearing.

Russian household purchasing power fell to its lowest level since 2009 in the first months of the year, according to analysis by Bank of Finland’s Transition Economies Unit (BOFIT) – Coronavirus exacerbating years of cutbacks in living standards spurred by sanctions against Russia. the annexation of Crimea in 2014 and the austere economic policies of the Kremlin.

In response, households replenished credit to help cover daily expenses. The number of payday loans issued hit an all-time high in March, while the volume of loans over 90 days past due rose 20% in the past year to exceed 1 trillion rubles (13.5 trillion rubles). billions of dollars).

This isn’t the first time Russian regulators have feared an increase in lending, as the coronavirus pandemic has only granted a temporary reprieve to a phenomenon that has been going on for years and where household spending is growing faster than income, the gap being covered by higher borrowing rates. In 2019, the Bank supported a series of measures that capped interest rates and required banks to keep more capital available for riskier borrowers.

The Bank is now backing a new round of bills under consideration in the Russian Parliament that would require banks to tell borrowers when a new loan would take them above a 50% debt-to-income ratio – where spending of debt repayment account for more than half of their monthly income – said Yudayeva on Monday.

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