Personal debt begins to bite
- By Marge Tubalkain-Trell
Tallinn - The fallout over the credit crunch continued as it was revealed that personal debt in Estonia has reached new levels.
A survey by Faktum & Ariko showed that 6 percent of people had significant problems repaying their loans. This means about 60,000 people are having serious debt difficulties, a staggering amount in a country of only 1.4 million people.
The survey also revealed that half of all women and third of all men had some debt difficulties, Eesti Paevaleht reported. In total, 28 percent of people had some difficult in making loan repayments, most of them in the 34 and under age range.
Estonia has been in the grip of a credit mania in recent years the likes of which are unheard of in Western European countries. In Estonia, people with no assets or collateral can get credit of up to 10,000 kroons (640 euros) in minutes just by using text messaging.
A representative from Ferratum, a lending company, explained that the situation was not good for borrowers.
"About 3,000 's 4,000 individuals each month take loans from us. About 10 percent of them do have problems with paying the loan back, but I can not tell you the exact figures," she said.
The spokeperson for Ferratum said however the market is stabilizing and they don't expect the number of borrowers to increase. Ferratum is one of many companies that offer loans by text messaging, which means quite a large number of them are taken each month.
Other people in the industry believe that the borrowing frenzy is over, especially with the slew of bad economic news. The International Monetary Fund (IMF) recently released a report that the region could be heading for a hard landing.
"People don't take as many loans as they did year ago. They think more carefully now," Lauri Karner from Parex Bank said.
Karner predict that they do not expect have significantly more clients who can not service their debt properly. Ferratum, on the other hand, expects the number to increase by two percent.
Consumer loans are popular because they are easy to obtain, despite exhorbitant interest rates, and don't take much time.
Analysts say that when people start to have debt problems, the first things that suffers are consumer loans, such as credit cards and short-term loans. After that come car leases. People usually try their best to pay house loans.
In Latvia the easily available credit has led to a similar situation.
"It is true that many loans in the past have been over issued because borrowers wanted more money to spend on consumer goods, but there are new rules now in place to diminish this practice," Unibanka chief economist, Andris Vilks said.
In Estonia it is the youth who have been swayed most by the credit boom. Sirle Kuusik, 22, borrowed 15,000 kroon at a very high interest rate. She said that she is having difficulties repaying her loan. She got into this situation after losing her job and is having difficulties paying her bills. She explains that she now realizes that her problems could have been solved in other ways.
"Life is quite expensive and I have a high interest loan 's about 32 percent per year. I just thought I'd cut my expenses into smaller bites, but now even that is too much for me," she said.
Many Estonians blame the banks and lending companies for handing out credit willy nilly.
"Actually it is so easy to get a loan.You do not even think about other possibilities. I know people who have taken loans to go to the casino. People don't think they may have to pay the money back, " Kuusik said.
She added that it's is still easy to get a loan just by using text messaging services
"They don't do any checks. You just have to have a bank account and be only 18 or 21. That is it, " she said.