Nabiullina Warns Russian Consumer Loan Surge Puts Growth at Risk

Russian lending to households is showing signs of “overheating” as the level of borrower indebtedness is outstripping incomes, the central bank chief said, warning that consumer loans won’t sustain the economy.

“Signs of overheating are emerging in the sphere of consumer lending,” Bank Rossii Chairman Elvira Nabiullina told lawmakers in Moscow today. “Consumer lending may become not so much an engine of growth as a threat to financial stability.”

Russia is trying to curb dangers from risky lending practices even as the government and central bank seek ways to reduce borrowing costs to bolster the economy, which failed to accelerate last quarter and grew 1.2 percent, less than half last year’s pace. OAO Master-Bank today became the biggest lender to lose its license this year after the regulator accused it of repeatedly breaching money-laundering laws.

The central bank backs the idea of introducing maximum caps for retail borrowing costs to fight “usurer-like” loan rates, Nabiullina said. Policy makers led by Nabiullina, who took over as chairman in June, have kept interest rates steady since an increase in September 2012 as the inflation rate has held above its target range of 5 percent to 6 percent.

“The central bank’s task is to find the correct balance in its decision between economic growth and price stability,” she said. “Monetary policy won’t be so tight as to choke economic growth, but it won’t be so relaxed as to fan inflation.”

Shrinking Share

Russia, where growth averaged 7 percent during Vladimir Putin’s first two terms as president in 2000-2008, will see its share of global GDP eroded over the next two decades as the economy expands more slowly than the world average, Economy Minister Alexei Ulyukayev said Nov. 7.

Growth of 1.5 percent to 2 percent is becoming the “new norm” for Russia, according to Nabiullina. Economic growth had slowed every quarter since the last three months of 2011, when GDP expanded 5.1 percent, according to data compiled by Bloomberg.

“Unfortunately, according to the central bank’s estimates, this isn’t a short-term cyclical slowdown, caused by the intensifying crisis on global markets,” she said. “The slowdown is structural in character, linked to the exhaustion of the potential for a recovery.”

Russia must pin its economic hopes on an increase in investments, she said. The biggest contribution monetary policy can make to improving the business climate is by ensuring price stability and eliminating macroeconomic uncertainty, according to Nabiullina.

“The main challenge for all of us -- and it’s a challenge that monetary policy should respond to -- is to transition to a new quality of economic growth,” she said. “The old model of development, based not only on high but constantly growing commodity prices, has clearly exhausted itself.”

To contact the reporter on this story: Olga Tanas in Moscow at

To contact the editor responsible for this story: Balazs Penz at

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