Bank Asks Clients to Pay Off Mortgages

MTA RosEvroBank outlet on Ulitsa Sushchyovsky Val. The bank warned clients that property prices could fall 30 percent.
Midsized lender RosEvroBank has asked clients to pay back their mortgages right away rather than risk the prospect of real estate prices falling 30 percent, the bank said on Friday.

"We are warning clients that they are in a crisis situation, that we are in this situation with them, and that both of us need to create a certain pillow of support," said Yelena Safyanova, the bank's head of communications.

With the credit crunch showing no signs of abating, many Russian companies from the largest conglomerates to the smallest retail chains have been taking desperate measures to raise cash.

Safyanova said her bank was in good financial shape and that it had recently paid back the first tranche due on a loan for $150 million.

But she said borrowers would be better off paying back their mortgages now, as their financial well-being could quickly deteriorate given the present state of the economy.

"There is also a crisis on the labor market, so they may be left without work or have their pay cut. … We should all try to close our debts now before it's too late," she said.

RosEvroBank chairman Ilya Brodsky said that dropping property values were eating away at the value of the mortgage loans' collateral, which is usually the property itself.

"If the collateral loses its value, becomes worthless, the bank has to take steps to make the borrower compensate for that," he said in a statement. "Some of the largest real estate agencies are forecasting at least a 30 percent drop in property values."

Safyanova said the bank had the right to change the loan agreement unilaterally if the value of the collateral falls but that in practice the bank would try to work with clients to renegotiate the terms allowing early repayment.

Garegin Tosunyan, the head of the Association of Russian Banks, a lobbying group, said that in troubled times this practice was understandable.

"They are worried that this will make trouble for them later, so they are hedging their risks. But this doesn't mean people are going to start ripping up contracts," Tosunyan said on Ekho Moskvy radio.

Several Russian banks have frozen or suspended their mortgage lending operations as a growing chorus of analysts claim that a bubble has formed in Moscow's housing market, and sooner or later it will burst.

In a recent note to investors, Moscow brokerage UniCredit compared the housing market in Russia with that of the United States, where soaring prices and risky lending have led to a collapse that infected the wider global economy.