bne IntelliNews – Personal bankruptcies in Russia double in 1h21 as moratorium expires

With the expiration of the personal bankruptcy moratorium put in at the height of the COVID pandemic, the number of personal bankruptcies in Russia more than doubled in 1H21, with 88,000 people declared bankrupt in court, report says of the RBC Business Portal.

Part of the reason for the increase in bankruptcies is the end of the moratorium, which was in effect from April 2020 to January 2021 and delayed the downfall of many companies.

As reported by bne IntelliNews, in March 2020, the Russian government imposed a moratorium on bankruptcy, prohibit the opening of such files.

For legal entities, the number of insolvencies is also on the rise in 1H21, up 9.2% to 4,900 cases, according to Kommersant, which notes that previously, in 2018-2020, cases were on a downward trend. The number of preliminary rulings by creditors also increased in 1H21 by 30% to 15,900.

The sharp increase in the number of personal bankruptcies at the Ministry of Economic Development can be explained by the “low start trap”. The institution of bankruptcy is gradually becoming “a more popular legal mechanism to free citizens from bad debts,” said Deputy Minister of Economic Development Ilya Torosov.

Nonetheless, real incomes have been falling for at least six years, putting the Russians under increasing pressure. At the same time, the level of credit has increased to the point that the Central Bank of Russia (CBR) is worried about the emergence of a consumer credit bubble.

Real disposable income fell 3.6% in 2020, as the pandemic saw a temporary increase in unemployment and wage cuts for millions of people across the economy. And real disposable income fell 3.6% in the first quarter of 2021 compared to the same period of 2020.

The regulator began to see the acceleration of loans to the population in the spring and has already announced the tightening of requirements for banks.

In May, the growth rate of unsecured consumer loans increased further up 2.2% (according to preliminary data) against 1.6% in April. To mitigate the risks, the Bank of Russia had previously taken the decision to put into force from July 1, 2021 restrictive macroprudential measures providing for the application of premium / risk ratios at the level of effectiveness before the pandemic.

In total, since the beginning of the year, the volume of loans to individuals has reached 5.3 trillion rubles ($ 7.1 billion). For comparison: for the same period of 2020, banks issued loans only for 3.3 trillion rubles.

While the debt level of the average Russia is equivalent to about two monthly incomes, and therefore not a huge amount, personal debts have been steadily increasing as many Russians try to compensate for the decline in real incomes by borrowing. more to maintain their way of life.

Since July 1, the CBR has ordered banks to apply higher risk ratios when issuing unsecured loans. Risk weights have returned to pre-crisis values ​​to “cool” lending in this segment, said Central Bank Governor Elvira Nabiullina. And from August 1, mortgage requirements will be tightened for banks: the increase in premiums will affect loans with a low down payment of 15 to 20%.

This year, the debt burden of the population has increased rapidly. Between January and April, the personal loan portfolio grew 6.8%, said Roman Rybalkin, deputy director of the S&P Financial Institutions Group, as quoted by RBC.

But Rybalkin believes the lending rate will slow down on its own, without the CBR needing to tighten conditions, as the lending rate is sensitive to interest rate dynamics and the CBR has also already started to tighten. its monetary policy due to sharply rising inflation. The CBR already raised its rates in March (25 bp), April (50bp) and June (50bp), and is expected to raise rates significantly in July, perhaps by a percentage point, to curb the spike in inflation.

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