Moscow Times
September 30, 2008
Ordinary People Could Feel Bankers' Pain
By Max Delany / Staff Writer
The spillover from the international financial crisis threatens to hit the pocketbooks of ordinary Russian borrowers, as a number of the country's commercial banks batten down the hatches in a bid to weather the current storm of uncertainty.
Although many consumer lenders insist that it is business as usual, some have had to impose withdrawal limits, raise rates, increase credit checks and stop making long-term loans.
A day after billionaire Mikhail Prokhorov agreed last week to pay $500 million for half of investment bank Renaissance Capital, Renaissance Group's commercial arm slapped draconian limits on its credit card holders and increased checks on potential borrowers.
"Because of the unstable situation on financial markets, Bank Renaissance Capital put some limitations on its credit card clients," said Alexei Levchenko, chairman of the management board of Commercial Bank Renaissance Capital, known as Renaissance Credit.
The bank also imposed a temporary monthly limit of 15,000 rubles ($590) for a maximum of two ATM cash transactions and one noncash transaction for its credit card holders. The restriction affected about 40 percent of the bank's clients.
"We have made these actions in order to save our stability on the market and also to protect our customers by better managing risk," Levchenko said.
Levchenko also said the bank had increased the verification period for cash loan credit applications to between two and three weeks.
"Loan credits are being granted, but concerning the current situation the bank has to be absolutely sure of the reliability of the borrowers," he said.
Although few banks have yet taken such drastic steps, Renaissance Credit's moves seem to be the tip of the iceberg, with other banks raising rates on their credit cards in the past few days.
Absolyut Bank will also put up rates on its credit cards by 3 percent to 4 percent.
Most heavily affected so far, though, have been long-term loans, such as mortgage and car loans.
The second-biggest retail lender on the Russian market, Home Credit and Finance, is stopping its mortgage and car loans and focusing on credit cards and in-store loans, Vedomosti reported Monday.
"As a result of the recent events on the capital markets, new funding for our business has essentially shut down. Most banks in Russia depend on external funding and are as impacted as us," the bank said in a statement Monday.
"We're moving with the market and have to prepare to live without external funding for an indeterminate period," the statement said.
Four-fifths of Russian banks are facing problems with loans in the mortgage market, UniCredit director Mikhail Alexeyev said, Vedomosti reported Friday.
Also up are the rates for buying automobiles on credit, with the major market players hiking their rates by 2 percent to 3 percent over the past week.
Absolyut Bank, a leading car-loan specialist, raised its rates on Thursday in response to current market conditions, spokeswoman Anastasia Karpikhina said.
Despite the turbulent waters for lenders, Russky Standart bank, the country's biggest consumer lender, brushed off suggestions that borrowers were suffering.
"Consumer confidence is steady, and we continue to offer all our products to our customers," said Preston Mendenhall, the bank's communications director.
"The terms and conditions of our loan and credit card products are unchanged."
In stores across the country, the amount of goods being bought on credit has not yet seen a dip.
This summer, 27 percent of products sold by electronic retailer Eldorado were purchased on credit, compared to a figure of about 25 percent last year, Eldorado spokesman Ilya Novokhatsky said.
Although the mortgage market has been adversely affected, consumer groups say that despite isolated examples, borrowers are not yet feeling the pinch in other areas.
"The banks already compensate for risk by charging very high rates," said Dmitry Yanin, director of the International Consumer Societies Federation. "Loans such as in-store credit are very profitable for them, so they are not in a hurry to start cutting down on them."
One industry insider, who asked not to be named because he was not authorized to speak to the media, put the value of banks' in-store loans portfolio at $3 billion.
Despite the current situation appearing to be steady, Yanin predicted that borrowers could face big problems down the line.
"When the current financial crisis starts having a major effect on the real economy, people are made unemployed and banks start losing out on loans, then we will see a big impact," he said.