Here's capitalism's real secret weapon. We should have launched this on the Russians when Reagan was president.
This story from Yahoo tells about how credit is coming to Russia. First of all, for those of you who do not know, Russia hasn't had a credit system in the past -- even homes were paid for in cash:
A recent survey found that a quarter of Russians took out a loan last year. But although personal lending grew by 107 percent in 2004 it totaled just $22 billion, or under 4 percent of gross domestic product, central bank figures show.
But things are a changin' and the vultures are circling:
Russia's consumer finance boom has arrived, big time, and Delta Bank was one of the early entrants into a market which barely existed three years ago and is expected to double in size annually in the years ahead. GE Consumer Finance bought Delta Bank last year in a deal worth $150 million to spearhead its thrust into Russia, which with China is a key growth target for the U.S. giant.
The pioneers of the consumer lending boom -- Russkiy Standart, Home Credit and Delta Bank -- are grabbing customers in stores with quickie loans for TVs, fridges and sofas without having to support costly branch networks.
Czech-owned Home Credit and Finance Bank (HCFB), which came to Russia in 2002, expects consumer lending in Russia quickly to reach the double-digit share of GDP typical in Eastern Europe. It offers point-of-sale loans averaging $400 -- above the typical monthly wage of $300 -- and sells so-called 'revolving loan' credit cards charging lucrative rates of interest.
Also in the fray is Rosbank, Russia's No.7 bank by assets, which is pushing its cards business after its $200 million acquisition of retail bank OVK in 2003. Rosbank has 1.5 million cards issued -- although many are 'debit' cards on which customers keep cash balances. That will change, though, as 90 percent of Rosbank's personal loans have a credit card thrown in.
Rosbank's 'Avtoexpress' product, offered in car dealerships and the bank's 560 branches, is selling well, said Golubkov.
Rosbank will launch a mortgage offensive in early 2006 to capitalize on a housing market Golubkov reckons is worth $4.5 billion a year in Moscow alone. "That is a very pessimistic estimate, and that's why we see such huge potential," he added.
State-owned Vneshtorgbank, Russia's No.2 bank, has also announced plans to issue a $100-million mortgage-backed bond by the end of this year.
But their remains some hope:
"What we've found is that people do pay you back," says GE's Cook. "Russians do care about establishing a credit history."
Good for them. But given human nature, I'm not sure they'll be able to resist the temptation to charge, charge, charge.
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