MOSCOW, Sept 20 (Reuters) - When Elena Nikiforova started offering consumer loans to her bank's clients a year ago some of them looked at her in horror.
"When I tried to explain what we were offering, some people would even get offended saying 'we are not so hard up that we need your loans," said Nikiforova, who works as a saleswoman for Russian Standard Bank in an electrical appliance store in a Moscow suburb.
Now business is snowballing in a country where the done thing for most people is to pay for everything in hard cash.
"People have to queue sometimes and I can't leave the office for a moment," she said while drawing up consumer loan agreements for five Muscovites, all of them eager to buy TV sets or washing machines.
Other banks, including Russia's largest privately-owned retail bank, Alfa Bank, are also getting in on the act with consumer loans.
With tens of millions of Russians still living under the official poverty line, the idea of buying now but paying later is catching on. Monthly salaries average $140 in Russia and often less in the provinces and few people have a bank account.
"We have tried to save the whole sum but hundreds of other things always crop up to spend the money on," said Svetlana Khlamova, a 30-year-old economist, while her husband filled in forms to buy an 11,000 rouble ($348) TV set, weeks after the family paid off their first credit for a washing machine.
Khlamova said the credit was about the only way to make life more comfortable for her family on a monthly income of 14,000 roubles.
Russian Standard Bank was one of the first to spot an opportunity but had to win over Russians reluctant to have anything to do with banks since the 1998 financial crisis wiped out the entire live savings of thousands of people.
"We decided to change the philosophy. We did not ask our clients for money, we offered money to our clients instead," said Margarita Krakovskaya, head of Russian Standard bank's communications department.
"We decided to catch their attention by giving them the chance to create their own credit history for the first time," she added.
Founded in 1999, the market newcomer launched its first consumer lending programme in March 2000, helped by U.S.-based consulting firm McKinsey, targeting millions of Russians with monthly income of about $200-300.
It offered Russians hungry to buy fridges, cookers and electronic goods 5,000-150,000 rouble credits for up to 12 months at 35-45 percent annual interest. The bank asks for a 20 percent down payment and two identification documents.
The bank's lending portfolio grew four times to $140 million in a year to the end of July.
It now has partnerships with more than 1,500 shops and retail chains in Moscow and the surrounding region providing roughly 1,000 credit decisions a day, Krakovskaya said. She said less than 10 percent of clients were defaulting on loans.
HEAVYWEIGHTS TAKE NOTICE
Larger banks, which have tended in the past to focus on corporate clients, are taking notice of Russian Standard's success and smaller competitors are moving in.
"We are working on a breakthrough in retail banking," said Maciej Lebkowski, head of retail banking at Alfa Bank, which has set its sights on more than doubling its share of the retail market in four to five years.
The state owned savings bank Sberbank (SBER.RTS), by far the country's largest financial institution, is also offering consumer credits but its conditions are more stringent.
Lebkowski said the bank, present in almost every big city in Russia and with an extensive network in Moscow, was focusing its efforts on developing a profitable low cost retail network.
"Customers have no credit history and that is why the market heavyweights are still cautious on uncollateralised lending," he added.
Lebkowski said it was still early to talk about a lending boom with consumer loans averaging $8.0-10 per person compared to almost $300 in other East European emerging markets like Poland or Czech Republic.
"It could take some two to three years (before we see a real boom). But for those who want to enter the market it could be too late then," Lebkowski said.
WILD GROWTH SEEN
Analysts said consumer lending was among the fastest areas of growth in Russia due to a combination of rocketing consumption as Russians become wealthier and rapid development of a domestic capital market.
But they warned that inadequate supervision as well as a lack of experienced credit personnel in the banks posed a potential threat in the future.
"It is going to be a very wild market and during any wild market there will be mistakes made on the banking side," said Roland Nash, a chief strategist at Renaissance Capital.
"It is pretty clear to me that after you have a very rapid expansion there will be failures on the back of it. In two or three years some firms will find themselves over-stretched because they made wrong credit decisions early on," he said.
Alexei Zabotkine, a chief economist at United Financial Group saw no immediate threats of a systemic character to the banking sector but said risk management would become a priority when competition started to eat into lending rates.
If Russia's oil-dependent economy ran out of steam it could spell trouble for the consumer lenders.
"It is all so good now that oil prices are so high and everyone has a well-paid job, but look what will happen if oil stays at $15 for a year," Zabotkine said.
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