After decades of cash under mattresses, Russians head to bank
Monday, 30 July 2007
MOSCOW, July 29 (AFP): In a country where banking services were once limited to loans from friends and a wad of cash under the mattress, Russia's banks are steadily making a comeback.
Less than a decade after the financial crash of 1998, Russia is enjoying fiscal health and economic growth and these are changing the habits of the growing middle class, together with the banking sector.
"Increased income levels and social mobility are encouraging the emerging middle class to... rush to upgrade living standards," US investment bank Merrill Lynch said in a recent report.
Rapid growth in real wages -- 17.5 per cent in the first quarter of this year -- is driving "buoyant demand for almost everything, ranging from new autos, mobile phones and furniture to clothes, travel and entertainment."
And the banking sector is surging along with this consumer boom.
In the first four months of this year, banks' assets increased by 13 per cent and loans by 12 per cent, the financial house Deutsche UFG said in a recent report.
But serious obstacles remain to changing the Russian habit of cash-only living.
Automatic cash dispensers are still relatively thin on the ground compared to the mature Western markets.
The same goes for the number of sales outlets willing to accept bank cards. Try for example paying by card for a long-distance ticket at a Moscow train station and you may be turned away.
A recent study by the VTsIOM polling centre revealed that only a third of Russians use debit cards, while a mere five per cent hold credit cards.
And while savings accounts are growing, Russians still keep "an estimated 20 billion dollars (15 billion euros) under the mattress," the Merrill Lynch report said.
Nevertheless, as the country's economy races forward, consumer lending is seeing "explosive" growth, particularly in the real estate sector, where Merrill Lynch predicted a 100 per cent rise in the mortgage market in 2007.
There is clearly room for long-term growth, as "more than half of all Russians are unsatisfied with their living conditions, yet only one per cent of households have taken a mortgage," the report said.
Another side of the banking boom has come from the new willingness of banks to offer financial services to Russian companies previously considered untrustworthy, Alfa Bank analyst Natalya Orlova said.
The total amount of loans to businesses is still a modest 40 billion dollars -- a fraction of what banks loan to private consumers -- but the trend is clearly a positive one, Orlova said.
In this respect Russia has some way to go to catch some of its neighbours, and remains relatively 'under banked', Deutsche UFG banking analyst Dmitry Dmitriyev said.
Less than a decade after the financial crash of 1998, Russia is enjoying fiscal health and economic growth and these are changing the habits of the growing middle class, together with the banking sector.
"Increased income levels and social mobility are encouraging the emerging middle class to... rush to upgrade living standards," US investment bank Merrill Lynch said in a recent report.
Rapid growth in real wages -- 17.5 per cent in the first quarter of this year -- is driving "buoyant demand for almost everything, ranging from new autos, mobile phones and furniture to clothes, travel and entertainment."
And the banking sector is surging along with this consumer boom.
In the first four months of this year, banks' assets increased by 13 per cent and loans by 12 per cent, the financial house Deutsche UFG said in a recent report.
But serious obstacles remain to changing the Russian habit of cash-only living.
Automatic cash dispensers are still relatively thin on the ground compared to the mature Western markets.
The same goes for the number of sales outlets willing to accept bank cards. Try for example paying by card for a long-distance ticket at a Moscow train station and you may be turned away.
A recent study by the VTsIOM polling centre revealed that only a third of Russians use debit cards, while a mere five per cent hold credit cards.
And while savings accounts are growing, Russians still keep "an estimated 20 billion dollars (15 billion euros) under the mattress," the Merrill Lynch report said.
Nevertheless, as the country's economy races forward, consumer lending is seeing "explosive" growth, particularly in the real estate sector, where Merrill Lynch predicted a 100 per cent rise in the mortgage market in 2007.
There is clearly room for long-term growth, as "more than half of all Russians are unsatisfied with their living conditions, yet only one per cent of households have taken a mortgage," the report said.
Another side of the banking boom has come from the new willingness of banks to offer financial services to Russian companies previously considered untrustworthy, Alfa Bank analyst Natalya Orlova said.
The total amount of loans to businesses is still a modest 40 billion dollars -- a fraction of what banks loan to private consumers -- but the trend is clearly a positive one, Orlova said.
In this respect Russia has some way to go to catch some of its neighbours, and remains relatively 'under banked', Deutsche UFG banking analyst Dmitry Dmitriyev said.