Mortgage market remains stable in Russia

The sub-prime mortgage crisis in the United States and the credit problems associated with it may have come to Russia. There have been reports this week that a Russian lender has temporarily halted issuing mortgages, and that others are looking at the iss

Most banks are denying the rumours, but experts are saying that cautious behaviour is not out of place.

The fallout from the sub-prime mortgage crisis in the United States, and the resulting credit crunch affecting markets worldwide, is putting Russian lenders on alert. To date, some Russian financial institutions have altered their financing, and this week’s speculation about some halting mortgage lending remains just rumour. However, analysts say it is not out of the question that some lenders may temporarily halt mortgage lending, although only smaller banks are likely to do so.

“At the moment we see liquidity being squeezed in the Russian banking system. We also see that Russian banks are uncertain of their ability to refinance their foreign obligations. In the current situation, just the lack of funding will definitely get them to reduce the growth of their loans,” said Natalya Orlova, Chief Economist at Alfa-Bank, Moscow.

The Home Credit and Finance Bank is considered to be one of the fastest growing in Russia’s mortgage market. It started its mortgage operations only at the end of 2006, but it's already ranked 29th in the list of top mortgage banks across Russia and 14th in the Moscow region.

Vladimir Gasyak, the head of the bank's mortgages department, said Home Credit is only going to increase issuing new loans since its funding sources are dispersed, which diversifies the risks.

“Our plans to issue mortgages that we laid till the end of this year are invariable and our strategy for next year entails only increasing loans together with the expansion of our offices' network,” outlined Vladimir Gasyak

Experts say the worst scenario that the Russian mortgage market might experience in the coming months is a redistribution of market share.

“The state-owned banks and largest private banks will be able to take a higher market share because they are just more liquid and they will not experience the refinancing program so deeply as the smaller banks,” added Natalya Orlova.

Despite some pessimistic forecasts, most analysts say a crisis scenario like the one that has rocked the U.S. is most unlikely in the Russian market simply because this market is not as sophisticated or as significant for the whole economy.

It represents only 1.45% of Russia’s GDP, while in the U.S. mortgages account for about 70% of GDP and in Germany 80%. There is a long way to go before Russia develops this sector, with only 12% of Russian families willing to take a mortgage loan in the near future.