Coronavirus-related loan restructuring in Russia still at early stage
The impact of the coronavirus pandemic on the Russian economy has caused an increase in loan rescheduling, which is set to continue through 2020 and potentially into 2021. Currently, households and SMEs are the most affected by debt-servicing problems, but analysts expect this trend to spread to bigger companies in the second half of 2020.
Russian banks are facing a prolonged pandemic-driven loan restructuring, says Fitch Ratings. As of 3 June, about 5% of banking sector loans have been restructured, with around 3% of retail loans and 12% of SME loans restructured since 20 March, reads the Bank of Russia’s data on more than 50 lenders including all systemically important banks. The country’s largest 11 lenders, which represent about 75% of sector assets, restructured 1,5 trillion rubles (about 4,7%) of their corporate loans between 20 March and 20 May.
From 20 March to 3 June, banks received about two million loan restructuring applications from households, of which they approved just over one million. The number of applications from households peaked in the second half of April and gradually declined in May. Fitch expects strong demand for loan restructuring to continue and the volume of overdue household loans to increase in the second half of the year. Restructured loans may potentially exceed 10% of total loans.
Part of households’ applications were requests for payment holidays until the end of September 2020 envisaged under a government scheme for retail borrowers who suffered from a sharp income fall. The government has also introduced payment holidays for SMEs in industries most affected by the crisis, including transport, tourism and services. Banks granted payment holidays on 115 billion rubles of such loans between 20 March and 3 June, while the Central Bank estimated the total volume of eligible SME loans at 377 billion rubles.
So far, about two-thirds of SME restructuring applications have been made by individual entrepreneurs. Nonetheless, the rising average loan size of the applications suggests that more medium-sized companies are now tending to reschedule. Fitch expects this trend to continue in the second half of 2020. Demand for corporate loan restructuring is currently weaker, as corporate loans typically amortise more slowly. Besides, bigger businesses have cash cushions that can help to service interest payments for a while. However, Fitch suggests that corporate loan restructuring is likely to increase later this year, especially for borrowers in the non-food trade sector, car dealers, real estate developers and commercial real estate rental businesses.
Many of Russian borrowers may suffer long-lasting financial effects even after the beginning of economic recovery. Thus, banks’ impaired loan ratios are expected to deteriorate in 2020-2021.