August 08, 2020, – M.B.A. Finance took part in the publication of the news portal DEBT.RF
With the growth of credit debts from citizens and companies – everything is bad, from the state – everything is quite good
The coronavirus pandemic, while contributing to the increased digitalization of a number of industries, has brought more negativity than positivity to the global economy. In addition to the tragic death of people from the disease, it has exacerbated existing problems in the economies. Among such problems is the build-up of debts, which may one day “flare up” into a deep and serious crisis.
There are forecasts that Turkey will be the first to “break”, since it has accumulated a large number of short-term loans at the state level, and the monetary policy pursued by the country does not look consistent and confident. And where there are problems in one country, there are also problems in neighboring countries. As a result, the debt crisis may be worse than the predicted second wave of the coronavirus. The disease will somehow be able to cope with medical workers who are already better prepared to fight epidemics. And the debt crisis can take literally everyone by surprise.
Debts are the complex area that encompasses economists, lawyers, and debt collectors. DEBT.RF decided to interview experts from different industries and find out what to expect in the future.
Sergey Drozdov, the Analyst of FINAM Group, stressed that no one has yet been able to predict the exact time of global crises. However, the situation at the end of 2019, when the global economy was at the end of its cycle, and the aggravation of trade relations between the US and China only increased its stagnation, spoke of the approach of another crisis. The story of the coronavirus pandemic was just a trigger.
“As for Russia and its currency, in addition to energy prices, the ruble, like most of its counterparts in emerging markets, depends on the so-called political risks and the monetary exchange rate of the world’s largest Central banks. In particular, the economy of our country depends on the actions of the US Federal Reserve System (FRS), which generates global cash flows, thereby making the dollar one of the most popular currencies in the world,” says Sergey Drozdov.
The Analyst of FINAM Group recalled that in 2018, the actions of the US FRS aimed at pumping out liquidity from global financial markets led to a strong fall in the national currency of Turkey. Against the backdrop of weak economic indicators in Turkey, the country’s assets and national currency were covered by a wave of investor flight from emerging markets. Although Russia stood apart in this situation, having a positive balance of payments and impressive gold and foreign exchange reserves, the negative situation in emerging markets still put pressure on the monetary unit of our country. And at this stage, due to the next problems of Turkey, there are risks of repeating the scenario of 2018.
Fedor Vachata, the CEO of the debt collection agency M.B.A. Finance, said to the news portal DEBT.RF, that the growth of Russian debts and the emergence of a “debt bubble” has repeatedly been mentioned, which can lead (and to some extent has already led) to a crisis. The Government of the Russian Federation only began to seriously discuss this problem in 2019.
According to the data for 2019, the population’s debt on loans to banks amounted to more than 17 trillion rubles, while almost 40% of the economically active population has debt problems, and almost a third of citizens service loans. Last year, a number of measures were taken (the introduction of mortgage vacations, the calculation of the maximum debt load (PD) of the borrower), aimed at mitigating the situation. The situation with the quarantine, and with it the tightening of the economic crisis, may provoke a further increase in the population’s debt load.
“Last year, we noted that the population simply does not have enough funds to provide themselves and their families with the most necessary goods. People are more likely to apply for loans for re-crediting or to somehow hold on to their paycheck. Now the situation can get much worse.
Since the beginning of the year, the unemployment rate has increased by 2 times, and while economic activity is recovering, it is hardly possible to say that all enterprises will be able to work in pre-crisis mode and provide employment to the population. At the same time, we see that credit growth has increased in recent months. If the lending rate slowed in April, it has been growing since the beginning of May. And the level of debts is growing rapidly: during the quarantine period, Russians hardly thought about the need for large investments and more often applied for consumer loans and credit cards, the funds of which were mostly used to basic necessities, ” says Fedor Vachata.
The company’s statistics also shows a tendency in the citizens’ debts growth. The number of transferred debts (first placement) has increased significantly: approximately 1.5 times more fresh debts were transferred under the agency-based services during the quarantine period compared to the same period in 2019. This suggests that during the quarantine, citizens took out loans to stay afloat during this difficult time, but not everyone was able to service them. Although the coronavirus pandemic is an unprecedented case in world practice, it has shown the existing problems in the debt sphere of Russia and, unfortunately, is now exacerbating them.
Fedor Vachata criticized the populist trend that now prevails in the decision of problems with the debt crisis. Among them, we can highlight the initiative to ban debt collection activities, the need to forgive all debts, and provide huge amounts of financial assistance. Such a method can be called naive to some extent: having written off all debts from an easy hand, prohibiting professional recovery, it is impossible to start building “healthy” economic relations.
The CEO of the debt collection agency M.B.A. Finance stressed that lending, and as a result, the occurrence of debts, is an integral part of the economic development of the society. People want to live here and now, and everyone wants to take advantage of the benefits that our time offers. Therefore, credit growth is one of the indicators and elements of economic growth and welfare of the population. That situation we see on the example of many developed countries.
But in Russia, it is slightly different: if we look at the indicator of the real incomes of the population, since 2013, it is decreasing. Most part of the population takes out loans in order to hold on before salary, re-credit or buy more expensive goods on which it is not enough salary funds. The measures that have been taken recently (credit vacations and debt burden indicator, legislative regulation of debt collectors’ activities) contribute to building a normal chain of creditor-debtor relationships. But they don’t solve the whole problem. It is necessary to develop business activity, increase the level of employment and income of the population. And only then the situation will begin to change.
Also, despite the implemented programs to improve financial literacy among the population, its level remains quite low. If now the Russians have sorted out such issues as interest rates on loans and are more or less oriented in this matter, then at a fairly low level of understanding of the concept of debt, the features of its formation and the consequences of its existence. Usually, citizens and companies begin to deal with these issues at the moment of the appearance of a real problem.
Vadim Reznichenko, the Head of arbitration and corporate practice, financial markets at a.t.Legal, pointed out that the dynamics of personal and corporate bankruptcies is an indicator of the health of the country’s economy. However, the Russian authorities have adopted a moratorium on bankruptcy procedures, so there are fewer claims for insolvency. But it is impossible to judge the recovery of the economy by this criterion. Therefore, you need to track the number of applications for collection of overdue debts from contractors and compare it with the indicators that were in the “quiet” period, outside of the coronavirus pandemic.
“The decline in the purchasing capacity of the population, a sharp drop in demand put many small and medium-sized businesses on the verge of survival. In addition to the problems that have piled up, business must somehow address the issue of preventing creditors from initiating bankruptcy in the future. Russian bankruptcy legislation is focused on maximum satisfaction of creditors’ claims. The interests of the debtor are not essential. By and large, no one cares what will happen to them after the repayment of all debts, whether the debtor company will be able to restore its activities,” Vadim Reznichenko sums up.
The lawyer believes that the presence of an economic crisis in Russia is already obvious. And its overcoming is hindered primarily by the current bankruptcy legislation based on procreditor positions. The debt crisis could be overcome by achieving a reasonable balance of interests between the creditor and the debtor. The priority goal of the insolvency procedure should be to restore the debtor’s solvency, because then it will be possible to “resuscitate” the Russian economy. A solvent business is the key to developing regions and creating new jobs.
Yuri Kudryakov, the General Director of the financial marketplace “Unicom24”, believes that the situation in 2020 does not portend the emergence of a debt crisis. For example, in 2014-2015, every tenth loan was considered hopeless, every fifth loan went into delay, and the level of overdue debt for the year increased by 1.5 times. In 2020, although delinquency have increased in all segments, the growth rate is not a cause for concern, as it is within acceptable limits. Thanks to timely measures taken in terms of financial support from the Russian Government, when every second family faced a 20-80% decrease in income due to the coronavirus pandemic, it was possible to prevent a repeat of the situation in 2014-2015.
Artem Deev, the Head of the Analytical Department at AMarkets, shares a similar opinion. The expert links the absence of a debt crisis primarily due to a small external debt in Russia. “A long-term crisis threatens those states that purposefully accumulated national debt. Russia is not one of them. As of July 1, the national debt of our country reached 14.8 trillion rubles, or 13 %, and the maximum figure set is 20% of GDP. Even if the Ministry of Finance of the Russian Federation implements a development program this year, which includes a net 4 trillion rubles of borrowings, the debt will grow only to 17 %,” Artem Deev said to DEBT.RF
Those countries that have a higher indicator will have to endure the crisis in more difficult conditions. Including the United States and Turkey. Everything will depend on how quickly a coronavirus vaccine is found and put into production, and how soon trade and technological supply chains of goods are restored.
Oleg Bogdanov, the Leading Analyst at QBF, also believes that there are no prerequisites for the emergence of a global debt crisis. “In developed countries, Central banks conduct quantitative easing programs that support various debt markets. In emerging markets, there are problems in countries with balance of payments deficits and large external debt. Turkey belongs to this category of countries. There, the negative is reflected in the fall of the Turkish Lira, which fell by 5 % against the US dollar, and the growth of rates on the interbank market. Most likely, the problem is local in nature and can be regulated by the Turkish financial authorities,” Oleg Bogdanov explained.
The Analyst believes that Russia has no problems with public debt, since both external and internal debt is very small.