Page 91 - RusRPTMar21

Capital growth in December occurred mainly at the expense of earned profit, additional capitalization of a number of banks by 47bn, as well as the issue of subordinated bonds accounted for in additional capital.
The banking sector possesses a significant capital reserve of RUB5.8 trillion (about 10% of the loan portfolio), which maintains compliance with standards, but not premiums.
It should be borne in mind that the capital stock is distributed unevenly among banks.
The CBR expects a further decline in sector NIM of 20-30bp y/y amid pressure from the low interest rate environment. This estimate is below SBER’s (conservative, in our view) outlook for a 50bp y/y decrease in NIM. We also see a further decline in TCS’s NIM, balanced by an increase in net F&C income amid further growth in brokerage and other non-core businesses, as well as the launch of Tinkoff Kassa.
The sector average loan and deposit rates decreased by about 100bp in 2020. However, loan and deposit rates change in tandem, so the sector average net interest margin was a stable 4.2% in 2020.
Sector core operating income (excluding the CBR’s bad bank and Alfa-Bank, as the latter’s income in local GAAP accounts is largely affected by currency fluctuations) was RUB1.5 trillion in 4Q20, unchanged from 3Q20, but up from RUB1.1 trillion in 2Q20 due to improved economic activity and loan demand and financial market stabilisation. The 3Q20 and 4Q20 operating income compared well with the sector’s RUB1.4 trillion of operating income in the prepandemic period of 1Q20.
The Fitch-calculated annualised core pre-impairment profit/average gross loans ratio improved to 5.6% in 2H20 from 4% in 2Q20, so the ratio for 2020 was 5.4%, providing most lenders with reasonable ability to absorb increased LICs without significant pressure on capital. We forecast sector pre-impairment profitability to remain decent in 2021, but this is subject to continuing economic recovery and loan demand.
Fitch estimates that, if 50% of Covid-19-driven restructured exposures become impaired, banks would be able to reserve them up to the current level of impaired loan coverage with one year of pre-impairment profit.
Excluding Alfa-Bank (which reported a solid RUB157bn net profit in 2020, representing a 32% annualised return on average equity, ROAE) and the bad bank result, sector profit was RUB1.4 trillion in 2020. This translated to an annualised ROAE of 13% similar to 2019’s core ratio.
The sector-average total capital ratios (excluding the bad bank, whose Tier 1 capital was negative RUB1.4 trillion at end-2020) increased by 20bp in 2020 as lending growth was offset by profits.
Ratios were also supported by lower weights on certain asset classes from January 2020, with the largest effect from the 65% weight (compared with 100% in 2019) for high-quality corporate exposures. Some banks also
91 RUSSIA Country Report March 2021 www.intellinews.com