Photo: Mikhail Metzel / TASS
The share of problem and hopeless loans are highest in construction and trade, it follows from the statistics, first published by the Central Bank. This sector has been hardest hit by the crisis
Construction and manufacturing were the industries with the highest proportion of bad debts. This is stated in Friday’s “financial stability Review”, prepared by the Central Bank. Statistics on the share of toxic loans in terms of sectoral distribution, the Central Bank issued for the first time, told RBC press service of the regulator.
The Central Bank has disclosed the share of corporate loans of the fourth and fifth categories of quality — on the basis of this indicator, the Bank formed provisions for loans (prior to this, the Central Bank only disclosed the arrears by industry). The fourth category is the problematic loans, high credit risk, the size of the reserve should be not less than 51% relative to the amount of the debt. The fifth category of quality — “bad” loans (reserves — 100%): assumes that the probability of debt repayment is not in principle. Central Bank prepares these data on the basis of non-public statements of banks on asset quality and placed and raised funds, explains the leading methodologist RAEX Yuri Belikov. “The requirements of banks for approval of loan applications to borrowers from these sectors, which, according to statistics, a large percentage of problem loans will be higher. These industries may be harder to obtain financing,” he said.
The problematic construction of
The problem with bad debt is observed in the sectors oriented to domestic demand. Thus, the share of problem and bad loans in construction is 27.5% in rubles and 26.5% in foreign currency, more than half ahead of next branch (as of 1 March). “High risk area” begins with 9-10%, says the chief economist of the Eurasian development Bank (EDB) Yaroslav Lissovolik. Construction dipped “due to the fall in demand and devaluation,” says senior Director for analysis of financial institutions Fitch Ratings Alexander Danilov. Developers mainly carried out the construction through Bank loans, and now the demand for property not kept pace with the proposal, says the analyst of portal “Banks.ru” Alexander Kudryavtsev.
Dynamics of volume of construction works, according to Rosstat, is reduced in 2014, over the last fifteen years she grew in November 2016 (1.5% in November of the previous year). “Construction and real estate is traditionally a long investment loans, in such cases, banks must assess the risks in the years ahead, and of course it is difficult in the context of macroeconomic instability. Probable that a significant portion of these bad loans form those borrowers whose payments were affected at the peak of the crisis in December 2014 — early 2015,” says Belikov.
A high proportion of bad loans remains in the industry of real estate transactions, closely connected with the construction. She made up 12.4% on loans in rubles and 15.9% for loans in foreign currency.
The number of bankruptcies in the construction industry for the year 2016 has jumped by 17.3 per cent 3180 companies pleaded insolvent, says CEO of the Rating Agency building complex Nikolay Alekseenko. The profitability of construction works, according to Rosstat, last year was 5.5% while the average for the industries of 8.1%. The builders do not have enough money to pay loans, as the delay increases, Promsvyazbank analysts Ilya Frolov.
Banks accustomed to working with bad debts in construction, they restructuring them and wait for the housing market starts to recover, says General Director of investment company “the Forum” Roman Parshin. To worsen the situation should a program of renovation, he said. “It is actually created by another developer with a huge financial resources (about 300 billion rubles for three years), which also may not collapse, as the fed will be out of the budget. And it can be very hard to compete with commercial developers using its huge administrative resources. Will he do so or not, will actually determine the fate of the industry: if a state developer wants, he can absorb part commercial and part — push from the market. Their bad debts will be the determining factor, but will be one of his trump card,” he said.
The program of renovation can stimulate the production associated with construction, such as repair industry, said associate Professor, faculty of Finance, Ranepa Yury Tverdokhleb. However, according to him, this will not lead to a surge of activity in this area, and will only weaken the overall negative trend.
Banks restructuring loans for the construction industry to maintain their financial stability, emphasizes the Central Bank. Stability of the banks themselves are not threatened through adequate reserves, adds the regulator.
The oil industry safer trade
On the second place by the share of bad loans — wholesale and retail trade (Central Bank considers them in the same category). Here the problematic debt is 16.7% for ruble-denominated loans and 6.1% — in currency. However, statistics on trade almost nothing says due to the fact that it was “too diverse a field, it is necessary to drill down deeper in terms of types of products, specialization or diversification of trading companies,” says Belikov.
Retail sales fell more than two years, but by the end of April for the first time stopped the decline (this figure has not changed compared to April of last year). Over the past year, retail trade fell by 4.6%. Dynamics of wholesale trade more positively in this industry, a continuous decline is not observed, for the year it grew by 2.6% in March (latest available data) — and at 6.2% compared to March last year. “Reduction of solvent demand of the population in 2015-2016 impact on the financial condition of the companies engaged in wholesale and retail trade”, — writes the Central Bank.
Photo: Yegor Aleev / TASS
High credit risks are observed in small and medium business in this the proportion of bad debt is 25.3% (Bank disburses loans to small enterprises in a separate category, they are mainly concentrated in the areas of trade and real estate transactions). This is a risky segment which most strongly responds to the crisis, says Lissovolik. In the same position, in his view, is agriculture. The share of ruble denominated bad loans in it is 13.5%, currency — 15,1%, however, stipulates the Central Bank, the debt in foreign currency is minimal. It is noteworthy that the bad debts in agriculture, in contrast to trade and construction, are not accompanied by the plight of the industry as a whole. On the contrary, agricultural production steadily increasing (4.8% last year) and makes a significant positive contribution to GDP.
But the safest loans, as follows from the data of the Central Bank, to give to companies that are engaged in mining and manufacturing electricity, gas and water. Problem and bad loans in the ruble portfolio companies from the first of the industry is only 3.8%, and the second is 1.8%.
“Sector, which largely suffered because of the crisis, from-for falling of demand continue to survive the downturn. The least affected sectors, which has been mitigated impact due to the depreciation of the ruble is largely export-focused sectors, including oil and gas. Factor of the ruble, coupled with the dynamics of the demand recovery here is crucial,” says Lissovolik.
With bad debt, all is well
The overall quality of loans remains at sustainable level, said the Central Bank. From 1 October to 1 April, the share of problem and bad loans grew by 0.6% percentage points to 11.1%, but mostly “it was caused by the deterioration of credit quality of portfolios of banks undergoing rehabilitation” (for comparison, the share of overdue loans to legal entities on April 1, is 7.1%, according to CB). At the same time the loans of the fourth and fifth category does not represent a great danger, says Danilov. The amount of reserves on such loans is “almost completely covers the credits 4-5-th category of quality”, he said.
To mitigate the situation with bad debts could lower inflation and, consequently, the lowering of the key rate of the Central Bank, indicates Lissovolik, the company will be able to refinance and refinance its obligations. Now the rate is at 9.75%, for the fourth quarter, according to the Bloomberg consensus, it will be reduced to 8.25%, and by the third quarter of 2018 to 7.55%. Meanwhile, “there is a balance, in recent years the proportion of bad debt stabilized and almost do not grow up” and stabilization of the exchange rate and demand growth will help her to decline, adds Lissovolik.