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Not all credits are equally useful

Our finance company has a strong background in granting of credits to individuals. We are well aware of a targeted use of these loans, especially in respect of no-purpose cash loans. This enables us to reliably estimate the impact of consumer lending on Ukraine’s balance of payments.


It is a known fact that a negative impact on the balance of payments (external accounts) is one of the key problems with consumer lending. In this case, when talking about consumer lending we mean all loans granted to individuals for purposes not related to business.

So, this type of crediting falls into six subtypes which are divided into two large groups – purpose and no-purpose credits.

Let’s start with purpose loans:

- for real property purchase;

- for automobile purchase;

- for durable product purchase (including household electronics).

Loans for real property purchase. It is clear this type of lending spurs development of our domestic market. Foreign machines and equipment as well as some foreign tools and materials are used in construction, but in general works and services of domestic origin comprise the bulk of the price for an apartment.

Automobile loans were one of the drivers for currency crediting in a pre-crisis time. Even today auto loans greatly contribute to a 6.5% share of total Ukrainian imports in Q 1-3 this year. The specified indicator is a share of motor transport in total Ukrainian imports, following results of the first nine months in 2011. Is it much or not? This indicator makes up USD3.85B. However, it is almost three times as little as in the same period of 2008 (USD9.28B) when the automobile import rate had been the highest in all Ukrainian history. By the way, the share of automobiles in total imports was also much higher making up 13.7% of all commodity imports.

The financial crisis not only reduced the number of buyers, but also changed their preferences. Thus, a share of non-expensive automobiles manufactured in Ukraine went up, which means that auto loans (despite all comments) spur creation of an added value in Ukraine, apart from everything else.

Loans for durable product purchase are used by consumers for buying mainly foreign household appliances. Getting a loan for buying Ukrainian furniture or (very seldom) for Ukraine-made household appliances is an exception. If not to take this exception into account, credits for durable product purchase generally fail to contribute to our foreign trade balance.

No-purpose loans:

- cash loans;

- credit cards;

- no-purpose loans on security of real estate property and automobiles.

Secured no-purpose loans are usually taken for business purposes, or for buying real estate property not considered by a borrower as a loan security, or for major repair in a newly-bought real estate property. So, none of the three purposes (except for repairs) usually has to do with buying foreign goods.

Cash loans and credit cards are generally used for financing a current personal consumption. So, they spur imports as much as a timely paid salary do.

Conclusion: credits for automobile, household appliances and electronics purchase have most impact on the balance of payment. Other types of credits granted to individuals fail to significantly influence Ukraine’s balance of payment and hryvnia stability.