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The central bank of Russia projects that the profits of the country’s banks will achieve unprecedented levels, reaching around 3.3 trillion roubles ($36 billion) by the end of this year. However, it foresees a decline of approximately 1 trillion roubles in 2024 as elevated interest rates cool the growth of lending.
In 2022, profits experienced a sharp decline of almost 90% due to widespread sanctions imposed by the West on Russia’s financial sector in response to Moscow’s actions in Ukraine. Nevertheless, banks have staged a recovery in the current year, driven by robust lending expansion and elevated net interest margins, particularly fueled by the substantial defense budget allocated by the state.
The central bank indicated that lending experienced acceleration across all segments in the third quarter, although a potential slowdown is anticipated towards the year-end. Corporate lending, showing a growth of 5.9% year on year in the quarter, was propelled by demand for loans tied to state contracts, the replacement of external debt, and an upswing in housing construction.
The central bank’s significant 750 basis points of monetary tightening since July is expected to temper credit demand within the economy. Despite higher rates, widening interest margins have played a role in bolstering profits. The bank projects profits for 2024 to range between 2.1 trillion to 2.6 trillion roubles.
German Gref, CEO of Sberbank, the dominant lender that accounted for over half of the entire sector’s profits in 2021, acknowledged the challenges for 2024. Gref noted that the central bank’s stringent policy aimed at combating inflation, coupled with high-interest rates and measures to restrict lending, contribute to the complexity. However, he expressed optimism in surpassing the current year’s earnings in the bank’s forecasts for the upcoming year.
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