Bad debts draw proposal for greater state regulation

Russia's love affair with credit seems to have come to an end with the economic downturn. But debt recovery agencies are busier than ever – and some think it's now time to regulate them.

With the economic crisis already hitting Russia's consumers and businesses hard, the amount of outstanding debts has begun to rise sharply. Situations where businesses are asking “When will you settle your debt?” are increasingly being met with “It’s a crisis now, I can’t pay.”

That means more business for one sector of the economy – debt recovery agencies. Aleksandr Treshyov, of Treshyov and Partners says that is opening up a legislative gap.

“There are two ways the collectors agencies work. Most successful ones buy out problem loans from the banks at a discount and negotiate with the clients themselves. The second way is when the collectors are being hired and paid by a bank. But currently there are no legal regulations for debt recovery agencies. Quite often their activities conflict with Russian law.”

Anatoly Aksakov, President of the Association of Regional Banks say that has prompted his organisation and the Association of Debt Recovery agencies, to propose setting up a regulatory system and creation of a special state fund to buy out bad debt.

“We need to create a structure that would monitor credit histories and relations between banks and their clients. We also suggest creation of a special state fund able to buy out problem loans. And we also need to create the opportunity for restructuring loans.”

If things get much worse, some experts think that up to 20% of Russia's corporate and individual bank loans could become bad debts. That makes managing the problem with a regulated system all the more vital.