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bne July 2018 New Europe in Numbers I 57
Russian banks out of the woods, but no walk in the park Ben Aris in Berlin
Russia’s banking sector has returned to profit and the Central Bank of Russia (CBR) said in June that the sector clean up is nearly over. After more than two decades of “wild cat” banking, the dead wood and dodgy banks have largely been expelled from the sector, which is starting to look increasingly “normal”, even if there is still a lot of work to do.
Russian banks have had a terrible few years and now the recovery has started it is the state-owned banks that are benefitting the most. In June Rosstat revised its growth estimates up and said that the financial sector was the biggest driver of improving growth figures in 2017. The entire sector was loss making for most of 2015 and 2016 if you count out the state-owned retail banking behemoth Sberbank. In 2015 Sberbank accounted for all the profits in the sector by itself.
Banks turned the corner in the middle of 2015 and began to recover from the effects of the collapse and the low oil price at the start of that year, earn- ing RUB875bn ($13.6bn) for the full
Russia bank profit RUB bn
year. The pace picked up in 2016 with RUB945bn of aggregate profits and would have topped RUB1 trillion in 2017 if it weren’t for the collapse of some of the country’s biggest commercial banks, the so-called Garden Ring banks, in the autumn that nearly caused a systemic meltdown of the sector. The sector’s profits for 2017 were only an aggre- gate RUB788bn at the end of the year after banks as a whole lost a massive RUB322bn in September 2017 alone.
This year the sector is back on track
to earn over RUB1 trillion again. The sector took in RUB148bn of net profit in March and if it can keep up the average from the first three months of this year it will finish the year with some RUB1.3 trillion in profit.
State banks are increasingly driving the business, accounting for 73% of all lend- ing (68% of corporate loans and 80% of retail loans) and have been aggressively cutting rates to encourage more bor- rowing by their clients. As a result of the nationalisations of last year the state- owned banks now account for some
70% of the sector’s banking assets and even more in some key businesses. For example, the biggest five banks in Russia account for eight out of ten rubles lent to home buyers and mortgage loans were up over 80% in the first four months of this year.
The bottom line is the banking sector remains delicate, which is why the CBR’s reforms are important. In June CBR governor Elvira Nabiullina said that the clean up of the banking sector is “nearly over” as the number of banks fell to 534 and is approaching the 300 target Putin set several years ago that would give Russia a banking sector “similar to Germany’s.” However, there are still several years of work left to do. “For the fourth consecutive year, the average EE return on equity remained in the single-digit territory in 2017, on the Russian market the RoE dropped from 10% in 2016 to around 8% in 2017,” reports Raiffeisen International. There are several exceptions to this with Sberbank consistently earning RoE over 20%, but the sector average remains low.
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