Consumer debt risk becomes Russian political dilemma

Subject

Rising consumer debt in Russia.

Significance

Outstanding consumer loans hit a record level in July, intensifying the debate in government about the risk of a credit bubble. Russians, especially poorer people and those already in debt, are supplementing static or falling incomes by taking out new loans. Stricter rules discouraging banks from lending to the financially vulnerable have so far failed to stem the trend.

Impacts

• Mortgage credit expansion will help the housing property market.
• Government-level alarm at the social consequences of debt will pressure the Central Bank to raise prudential requirements more swiftly.
• Banks will want to see a recovery in corporate sector profitability before accelerating lending to the sector.