IMF warns Russia on increasing household debt burden

MOSCOW Tue Oct 22, 2013 12:42pm EDT

Visitors are silhouetted against the logo of the International Monetary Fund at the main venue for the IMF and World Bank annual meeting in Tokyo October 10, 2012. REUTERS/Kim Kyung-Hoon

Visitors are silhouetted against the logo of the International Monetary Fund at the main venue for the IMF and World Bank annual meeting in Tokyo October 10, 2012.

Credit: Reuters/Kim Kyung-Hoon

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MOSCOW (Reuters) - The International Monetary Fund warned Russia on Tuesday of increasing risks to its financial system, as households and banks start to feel strain of double-digit retail lending growth.

Russian banks saw unsecured loans on consumer purchases growing at a rate of up to 60 percent, pushing up the cost of borrowing for households. The rise in loans to companies has, by contrast, slowed as economic growth touched a four-year low.

"The current risks to financial stability are moderate, but growing," the IMF said in a report following consultations with Russian government officials.

"In particular, rapid growth in uncollateralized retail credit and worsening bank and borrower performance indicators need to be closely monitored."

The Fund sees Russian economic growth slowing to 1.5 percent in 2013, as the previous model of strong performance on the back of rising oil prices and utilization of spare capacity can no longer be sustained.

Russia's household debt-to-GDP ratio is relatively low, implying that it has some room to catch up with other countries such as Italy or Australia.

However, the average cost of debts as a share of household incomes rose to around 20 percent in Russia by end-2012, higher than in Italy or the United States, but close to the levels in Romania and Brazil.

The IMF said that burden had been rapidly increasing due to the large share of short-term borrowing and high interest rates in Russia. As a result, loan growth in banks has outpaced deposits, reducing the room to deal with unexpected losses.

The IMF advised the central bank to consider adopting ceilings on their loan-to-value and debt-to-income ratios to prevent risks accumulating in retail lending.

Analysts have warned that consumer banks, some earning returns on equity as high as 70 percent, are at risk of taking a hit to the quality of their loan books from a slowing economy that could force them to take heavy provisions.

The central bank has instructed banks to increase provisioning against retail lending - especially the high-interest point-of-sale loans many Russians take out to buy TVs or furniture.

Unsecured retail loans grew by 37.3 percent in September, year-on-year, slowing from 53 percent in January, as the economy barely grew in the third quarter.

(Reporting by Maya Dyakina; Editing by Alessandra Prentice, Douglas Busvine and Mike Collett-White)

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