Russia has recently opened its bank to issue credit cards. While living on debt enables one to improve its living condition – Moscow being the most expensive city when it comes to real estate – Russians are facing an unprecedented consumer debt.
Interest rates in Russia on credit cards are extremely high – the average reaches 24%. As personal loans increased by 46% in 2017, Russians tend to live at a higher level that they can afford.
More importantly, credit card issuances have risen by 63% last year and cash advances by 50%. What will happen if Russian consumers fail to reimburse in time? Will there be an impact on its national economy? Here is an analysis of what to expect in the upcoming months.
Loans have a high rate
While Russians had old habits of not consuming a lot during the USSR period, their consuming habits have radically changed for the past few years. While their way of consuming and living conditions goal are very similar…
But loans rates are so high, that only a few can reimburse them. At the moment, only 50% of credit card holders pay back on time.
"Many first-time credit card users have little experience managing debt. And with Russia facing other economic woes, these spenders are also seeing their inflation-adjusted salaries decline" https://t.co/8uTUVbwh3d
— Alex Moody (@MoodyBlx) August 5, 2019
As Yulia Kombarova, general director of the St. Petersburg-based Legal Bureau No. 1, explained to the Moscow Times: “Loans come at a much higher interest rate of 20% to 30%. With an unstable economic situation, long-term planning is much more difficult. Usually our clients lived on credit for many years with a good credit history until it all came undone.”.
As Russians do not receive any education on credit cards, the country’s stability is at stake.
Russia is unstable
As the job market is very unstable, Russians often need to look for a new place to work so they can pay back their credit on time – but only qualified workers manage to do so. For only the year of 2018, there was an bankruptcy increased by 30%.
Not only the economy is unstable, but so is the political background too: with the ongoing international diplomatic crisis with Washington regarding Iran and Syria, Russia has also local conflicts – such as Crimea.
Last but not least, as US president Donald Trump signed an executive order to sanction Russia for using chemical weapons, ruble dropped for the second consecutive month in August at 1.2% – trading 64.92 rubles for a dollar.
Read on Alvexo: “Russia Secret Services Underwent Its Biggest Hack”
Average income will drop
Not only its currency has dropped, but so has the average income. As the Russian government has expressed its fear of a “global recession in 2021”, the national average income has sharply decrease for the past few years.
In addition, “loan sharks” are an increasing trend in Moscow – and could have forced already 500 families out of their homes. As experts point out, Russia might need to educate its population to credit cards and loans before the debts are too high.
Here's one example of Ivan Golunov's reporting, which I had the honor of editing: he uncovered a massive loan-shark scheme that goes beyond Russia's borders and into the murky world of international dark money (h/t to @KevinRothrock for translating it). https://t.co/eIpBbWQ4TU
— Alexey Kovalyov (@Alexey__Kovalev) June 7, 2019
While the average monthly income went from $437 to $670 in one year between 2016 and July 2018, the average income for July 2019 was $762; which might be a a good sign for loaners.
However, experts think that the average income will drop in the upcoming months and will be back to the 2016 average. If the global recession is confirmed, dozens of thousands of Russians could then file for bankruptcy.