Get out of debts
According to the Bank of Russia, loan debt of the Russian corporate sector by September has reached historical peak of 31,8 trn RUB or 35% of the GDP. Compared to the same period of 2017, debts have increased by 10,5%.
To get funding is one of the key challenges hindering the development of business in Russia. The problem of business funding remains relevant throughout the company’s life.
The situation is that companies take credits while insufficient demand negatively affects the revenue. As a result, there is a need in additional financial resources, which are increasingly difficult to be serviced.
Following the reduction of the key rate to 7,25% by the Bank of Russia this year, loan debt growth has quicken noticeably. Companies began active borrowing of money after the period of 2015-2017 when the average debt was at the level of 28,8 trn RUB (see Picture 1). Processing enterprises have the highest size of indebtedness – 7,1 trn RUB.
In general, companies of all sectors of domestic economy accumulate debts at a fast pace. However due to historically low mortgage rates and deferred housing demand, the construction sector has noticeable increase in the number of real estate buyers, and credit indebtedness is gradually going down.
The highest credit indebtedness is accumulated by companies in Moscow – 12,4 trn RUB or over 40% of total debt. It bears mentioning that only 21% of all active legal entities in Russia are registered in Moscow, that speaks for disproportion in allocation of business. The bulk of business leaders are located in the capital. Significantly less investment, credit and debt in raw numbers fall for the share of regions. Saint Petersburg with loan debts of 2,1 trn RUB is ranked the second.
The highest average amount of credit indebtedness per 1 company is in Yamal-Nenets autonomous district – 35 mln RUB, Tyumen region – 19 mln RUB, and Chukotka autonomous district – 15 mln RUB (see Table 1).
Table 1. Average credit indebtedness per 1 company, as of 01.09.2018
|Rank||Subject||Average amount of credit indebtedness per 1 company, mln RUB|
|1||Yamal-Nenets autonomous district||35|
|3||Chukotka autonomous district||15|
The highest increase in loan debts was recorded for companies of the Republic of Crimea, Tambov and Voronezh regions: by 44%, 41% and 37% respectively. The Republic of Khakassia leads by the rate of debt drawdown – by 45% (see Table 2).
Table 2. The highest increase and decrease in corporate credit indebtedness by regions, according to the Bank of Russia
|Rank||Subject||Increase rate of credit indebtedness, % as of 01.09.2018 to 01.09.2017||Subject||Decrease rate of credit indebtedness, % as of 01.09.2018 to 01.09.2017|
|1||Republic of Crimea||44||Republic of Khakassia||-45|
|2||Tambov region||41||Zabaikalye Territory||-38|
|3||Voronezh region||37||Republic of Sakha (Yakutia)||-19|
|4||Chukotka autonomous district||35||Smolensk region||-18|
|5||Republic of Udmurtia||33||Kabardino-Balkarian Republic||-16|
|6||Tyumen region||32||Arkhangelsk region||-14|
|7||Tula region||31||Kostroma region||-11|
|8||Magadan region||30||Ivanovo region||-11|
|9||Novgorod region||29||Novosibirsk region||-11|
|10||Lipetsk region||27||Samara region||-9|
For the relatively short period not only business community based on market relations was formed in Russia, but also money-and-credit mechanism. Loans help companies to attract additional funds for increase in profits and sales, development of fixed assets and output. However, under adverse circumstances, loans could be crushing burden and one of the reasons of bankruptcy.
Loan growth should be followed by accelerated dynamics in economy, which is unfortunately not observed nowadays. Credits are used for accrued expenses and old debts covering, as well as for sustaining capital.
On September 14, 2018, the Bank of Russia raised the key rate up to 7,5% for the first time since 2014. According to Credinform experts, this will lead to some drawdown of corporate debt growth rate, but not eliminate the debt overburden risk. Balance between own and attracted funds, and reasonable estimate of sectoral macroeconomic indicators by the company’s management are indispensable conditions for sound business and economy in general.