Fitch: Russia’s banking sector stays healthy

Russia’s banking sector remains profitable and healthy despite sluggish corporate lending, reports bneIntelliNews. According to a report by Fitch Ratings, big companies are unwilling to borrow, so corporate lending remains more or less flat. At the same time, the Central Bank of Russia is counteracting the fast growth of retail loans over the first ten months of 2019.

In October, Russia’s corporate loans increased by less than 1%, while the total increase for ten months of 2019 amounted to 4%. “The main reason for sluggish corporate lending is a lack of demand from quality borrowers and banks’ still greater appetite for retail lending. Most lenders are not constrained by capital or liquidity,” reads the report.

To hold back the ballooning retail borrowing, the Central Bank has introduced new regulation, which involves higher risk weights on loans to leveraged borrowers. In October, retail lending growth decelerated to 0,7%, compared to 1,5% growth in September. “We attribute this moderation partly to the new regulation that became effective from 1 October [...] but also to banks’ higher growth appetite for a few months before the regulation tightening,” commented Fitch. Several large banks, such as Sberbank, Alfa Bank and Otkritie FC, still reported higher retail lending growth in October. Overall, retail loans grew by 15% in January-October 2019, according to Fitch. “This may reach 17% for the whole year, while for 2020 we forecast a slight slowdown to about 15%,” the agency says.

As for funding, banks largely continue to rely on the customers’ deposits. From January to October, customer funding grew by 2,5% adjusted for exchange rate effects. Funding from state entities increased by 1% in October and by 33% from the beginning of the year.

Ruble interest rates decreased by 35-45 basis points in October due to generally healthy liquidity and the Central Bank’s key interest rate cuts of 0,25% in September and 0,5% at the end of October. “Although interest rates are declining, we do not expect significant margin pressure in the near term, as loan and deposit rates are largely falling in tandem and the share of higher-margin retail business is gradually increasing,” the report reads.

The sector’s net profit totalled 173 billion rubles in October. Sberbank accounted for 45% of adjusted sector profit. VTB and Otkritie FC also reported good profits. Tinkoff became the best performer among specialised retail banks.