- Consumer defaults on the rise as man on the street feels brunt
- Seven banks have Eurobonds trading at distressed levels
Banks catering to Russian consumers have had a reality check since Hollywood hard man Bruce Willis declared retail lender National Bank Trust “badass, like me” four years ago.
Since then bad loans to consumers have doubled to 8 percent after the economy tipped into a recession that is threatening to be the longest in two decades. Russia’s ratio of defaulted retail debt has overtaken that of its biggest peers in emerging Europe, according to data compiled by Bloomberg Intelligence.
Russians are struggling to make debt payments as a second year of recession puts millions below the poverty line. The government saddled households with the brunt of the country’s economic contraction after oil fell to a 12-year low, responding to the crisis with spending cutbacks and a free float of the ruble.
“The economy is in recession for a second year so it’s natural for non-performing loans to be so high,” said Dmitry Dudkin, head of research at Uralsib Capital LLC in Moscow. “There are still problems with deficiency of capital in the Russian banking system. The risk is elevated in the real sector.”
The problem has seeped into the bond market, where yields of dollar notes of seven Russian banks trade at distressed levels of at least 1,000 basis points more than Treasuries. Subordinated notes are the riskiest, according to Dudkin, because they can be converted into equity if capital falls below a certain threshold. Credit Bank of Moscow’s $500 million subordinated note from April 2013 traded at a premium of 1,149 basis points to U.S. government debt at 1:45 p.m in London, compared with 1,005 basis points at the start of the year.
Trust Bank, touted by actor Willis in a 2012 ad-campaign that reprized his action-movie roles on billboards across Moscow, was among sellers of subordinated debt in 2013. Then lenders were seeking to bolster their capital positions before so-called Basel III rules took effect. By late 2014 Trust Bank became the first recipient of a government bailout amid Russia’s financial crisis.