Published: September 22, 2011
Institution offers Russian Standard Bank RUB4bn following earlier Renaissance Credit deal.
With the effects of the economic downturn still felt in global markets, the words “bankers” and “responsible” have not sat together comfortably in recent years. The European Bank for Reconstruction and Development (EBRD) hopes to change that.
The bank has given a RUB4bn (US$136mn) unsecured senior loan to Russian Standard Bank (RSB), one of the most established consumer lenders in Russia. The aim is lend money to RSB and banks like it with strings attached to encourage more responsible lending and a focus on transparency for the borrower.
There’s potential for progress on all fronts. Consumer credit penetration in Russia stood at just 6% of GDP in 2009 compared with 11% in Central and Eastern Europe, but is forecast to double to 12% by 2013, according to the EBRD. Since the first half of 2010 consumer lending and spending in Russia have begun to return to pre-crisis levels. Now is the time to ensure it’s done right.
The conduct of Russian banks has improved during the past 10 years, says George Orlov, the EBRD’s director responsible for financial institutions in Russia. Once, they were not obliged even to disclose the annual percentage rates (APRs) of interest on their loans in advertising. When these were revealed, they could stand at 70%-100% – “ridiculous, unsustainable and impossible for borrowers to live with,” Orlov adds.
Thanks to pressure from regulators, those levels of APRs are gone, as is the ability for banks not to disclose the interest rates of loans upfront. But there is still room for improvement. With banks keen to lend again since late 2010, the EBRD reviewed the market to discover where it could meet its mandate and encourage them to offer a better service.
“We assessed the sector comparing practices in Russia with best practices in our opinion and thought that we can try to influence closing the gaps by working with the leading operators,” Orlov says. In May it agreed a 3.5 year, RUB2.2bn loan with Renaissance Credit. Orlov says the latest RSB deal is of a similar stature, and that “through a large operator we can achieve greater demonstration effects and greater change”.
Other banks could soon benefit from EBRD funding – there’s a small number of consumer lenders in Russia and Orlov says his team would consider further loans to encourage a more transparent market.
Changing the market will also require a new mindset from borrowers, but here too Orlov is confident. “We see improved borrowers’ knowledge of products,” he says. “Today people ask many more questions before they take a loan.” The more questions that are asked, the easier the EBRD’s work here becomes.