Page 13 - bne_Magazine_March_2018

bne March 2018 Companies & Markets I 13
The banking sector ended 2017 with a total profit of RUB790, which was less than the CBR was hoping for (the regulator was targeting RUB1 trillion) and would have been more than the RUB930bn the sector earned in 2016 had not banks lost RUB322bn in September alone following the crumpling of Promsyvazbank that month.
Bankers fervently hope the problems with the so-called Garden Ring banks last autumn was a one off and that the sector will do better this year. Indeed, state-owned retail bank giant Sberbank says it hopes to reach RUB1 trillion of profits by 2020 on its own.
Maybe the most encouraging sign that the economy is coming back to list is the pick up in January in corporate loans. After slumping during the “silent crisis” of 2015-2016 retail lending start to recover at the start of 2017 and is now
“Average nominal incomes in dollar terms have made back much of the ground they lost during the Great Recession”
growing fast – so fast that the CBR is starting to get worried about another bubble forming. However, corporate leading has been falling for two years and without investment by companies Russia cannot hope to sustain its growth.
That changed in January when corporate loans surprised economists after the portfolio of loans issued by banks to Russian companies increased in annual terms for the first time since mid-201, up by 1.8% with the exception of currency revaluation, according to the CBR.
The reason for this is not clear, but there is an interconnected web of motives that go into corporate borrowing decisions: demand (incomes were falling but now are rising), the cost of capital (CBR rate cuts have made borrowing cheaper and
Russian bank sector profits RUB bn m/m
cheaper), and confidence (many businessmen have held off until the uncertainty of the March elections are passed and there is more clarity on the mooted new US sanctions).
And the borrowing conditions will only improve this year. The regulator cut rates in January to 7.5% and since then has said it expects rates to fall further to 6-7% this year, sooner than its earlier than the 2019-2020 it suggested previously.
“This represents a change in thinking by the CBR. It is transitioning from worrying about containing inflation, which has fallen beyond expectations, to thinking about boosting growth with lower rates,” says Kouzmin.
For most of the last four years companies have spent any extra money they have paying down their debt and that process of deleveraging continues. But it has left companies debt free and their ability to borrow abroad as renewed sanction fears receded has also depressed taking credits at home as for those companies with access to the international capital market it remains cheaper to borrow longer for less by issuing bonds than it does to take a credit from a Russian bank – until now. Russia’s companies have begun to replace their bonds with loans.
“Companies are becoming more active on the market: their debt on bonds last year has been steadily growing,” according to BOFIT. “So the smooth recovery of corporate lending was expected.”
But the switch from bonds to loans is a work in progress. The Russian central bank said that in the fourth quarter, corporate obligations on bonds, including single large placements, increased by RUB733bn ($13bn) while the portfolio of loans taken was up only RUB139bn. And only a limited number of Russian blue chips have access to the international capital markets in the first place.
www.bne.eu