Rus­sian Banks turn away cus­tomers as more bor­row­ers fall be­hind

The Pak Banker - - COMPANIES/BOSS -

PJSC Alfa Bank, the Rus­sian pri­vate bank founded by bil­lion­aire Mikhail Frid­man, is scal­ing back lend­ing for all but the most af­flu­ent clients af­ter a grow­ing share of cus­tomers fell be­hind on pay­ments this year.

The Moscow-based bank last month shut down point-of-sale lend­ing in 15 of the smaller towns where it does busi­ness, those with less than 300,000 peo­ple, said Mikhail Po­valy, head of the con­sumer busi­ness. It also plans to close some of its 280 branches in Rus­sia, Po­valy said.

"The profit on re­tail loans has sig­nif- icantly de­creased while the cost of fund­ing and risk has risen," Po­valy said in an in­ter­view in Moscow. "This makes lend­ing less in­ter­est­ing than it was in 2013 and 2014 and it won't re­cover for at least two years."

Alfa, Rus­sia's largest pri­vately owned re­tail len­der, joins a grow­ing num­ber of banks re­treat­ing from the con­sumer busi­ness as the coun­try suc­cumbs to its first re­ces­sion since 2009. They in­clude PJSC Ori­ent Ex­press Bank and Home Credit & Fi­nance Bank LLC, large pri­vately owned banks that are clos­ing hun­dreds of branches and point-of-sale desks. Alfa had $4.3 bil­lion in re­tail loans on its books at the start of June, mak­ing it the fifth-largest bank in Rus­sia for con­sumer lend­ing, ac­cord­ing to Moscow-based Frank Re­search Group. That's on the or­der of PJSC Gazprom­bank and OJSC Ros­selkhozbank, the two state-con­trolled lenders just above Alfa in the rank­ing.

The bank is con­duct­ing a de­tailed study of the fi­nan­cial sit­u­a­tion of Uralsib Bank, Forbes re­ported on its Rus­sian web­site Fri­day, cit­ing two uniden­ti­fied peo­ple close to Alfa. A bank spokesman would not com­ment, say­ing only the len­der re­mains open to deals. Uralsib is ranked No. 24 by as­sets.

Alfa em­ploys 10,900, many of them sta­tioned in stores where they is­sue loans on the spot to peo­ple look­ing to pur­chase big-ticket items like TV sets, house­hold ap­pli­ances and fur­ni­ture.

Point-of-sale lend­ing pro­lif­er­ated af­ter the global eco­nomic slow­down as Rus­sia wit­nessed a burst in con­sumer spend­ing that speeded its eco­nomic re­cov­ery. Now, with more bor­row­ers strug­gling to keep up pay­ments, banks are rein­ing in fi­nanc­ing for or­di­nary peo­ple, es­pe­cially cash loans not backed by col­lat­eral.

About 25 per­cent of Rus­sian bor­row­ers are car­ry­ing five or more loans, while two years ago only 20 per­cent had more than three loans, Po­valy said. "With such a debt load, peo­ple now of­ten ap­ply for a new loan to pay off one of the older loans," he said.

Alfa ex­pects its loan book to shrink as much as 20 per­cent this year, in part be­cause it plans to turn away some would-be cus­tomers. Po­valy said only clients with a monthly in­come of more than 250,000 rubles ($4,140) stand a strong chance of get­ting a loan. Just 2 per­cent of Rus­sia's work­ing-age pop­u­la­tion would meet that re­quire­ment.

Rus­sia's econ­omy con­tracted in the first quar­ter and the slump deep­ened in the sec­ond three months. At the end of June, the share of re­tail loans that were at least one day in ar­rears was 7.5. per­cent, up from 5.9 per­cent at the start of the year, ac­cord­ing to cen­tral bank data. At Alfa, the amount of im­paired con­sumer loans jumped 24 per­cent in the first half. About 5 per­cent of Rus­sians might be­come in­sol­vent in com­ing years, Mikhail Zadornov, the chief ex­ec­u­tive of­fi­cer at VTB Group's con­sumer unit, said in July. His bank is the coun­try's sec­ond-largest re­tail len­der af­ter OJSC Sber­bank. Adding to the pres­sure, lenders are pay­ing more for fund­ing af­ter the cen­tral bank raised rates last year in re­sponse to the ru­ble's col­lapse.

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