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are subject to full supervision. Russia had about 160 such banks at the beginning of March. The reform should clarify supervision and allow supervision to focus on the systemically most important banks. The law includes a 1-year transition period. The Duma quickly passed both bills on unanimous votes, signalling broad political support.
8.1 Bank sector overview
CBR has published preliminary sector statistics for March where stronger ruble and weak demand weigh on loan growth. Deposits were down 1.4% m/m whereas the sector profit reached RUB 339bn in 1Q17.
The balance sheet performance was mainly affected by further deleveraging and the 2.8% RUB strengthening vs. USD. The corporate loan portfolio declined 0.9% MoM (or 0.1%, excluding FX effects) due to a decrease in FX loans, but the retail loan book was up 0.7%.
Corporate accounts decreased 2.4% m/m (-1.3% m/m excluding the FX effect), while retail deposits were down only 0.4% m/m (+0.2%). As a result, gross LDR rebounded to the YE16 level of 84%, but was lower than the 88% m/m ) being replaced by Ministry of Finance deposits.
In the corporate segment, asset quality deteriorated amid large one-off non-payments, with overdue amounts up 5.8% m/m . The share of overdue amounts in the corporate portfolio increased to 7.1%, or back to the level of August 2016. In the retail segment, asset quality improved slightly as overdue amounts declined 0.2% m/m and their share improved 10bp m/m to 8.1%.
Profit grew 29% m/m to RUB127bn.
The data suggests that weak demand for RUB-denominated loans in the corporate segment (+0.4% MoM and +1.0% YTD) were offset by repayments of FX loans, while solid mortgage loan growth supports the expansion of the retail loan book. The growth of RUB-denominated loans and lesser liquidity are likely to have a positive effect on NIM. Meanwhile, the deterioration in asset quality raises concerns of a possible increase in provision charges in the coming months.
Russia’s banking sector is driven by consolidation and the increased share of state banks, which in 2016 accounted for 90% of banking sector profit. The CBR’s high interest rate policy favored strong retail deposit growth but froze the recovery in retail lending; corporate lending dropped by 4.6% y/y in 2016, cleaned of the revaluation effect, and continues to decline due to poor economic activity and diminishing pressure from foreign debt redemptions. ALfa Bank’s 2017 corporate loan growth forecast is downgraded to 2% y/y – the period of the strong ruble exchange rate could be used by corporate clients to reduce forex-denominated exposure to banks.
65 RUSSIA Country Report April 2017 www.intellinews.com