Profitability of Russia’s banking sector weakens

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/06

Growth of Russia’s banking system largely stopped last year and profitability fell significantly. The Central Bank of Russia reports the banking sector’s total assets increased by about 7 % last year, but due to exchange rate shifts, total assets of the sector were down 2 % from the end of 2014. The contraction reflects a stoppage of growth of the credit stock and growth in loan-loss reserves. The stock of credit granted to households contracted sharply (-7 %), while the stock of corporate credit grew by about 3 %. The share of forex credits grew slightly. Forex loans at the end of December accounted for just under 3 % of the household credit stock but about 40 % of corporate credit stock.

Total banking sector profits in 2015 contracted to 192 billion rubles (€2.6 billion), about a third of the 2014 level. When the profits of Sberbank, Russia’s largest bank, are excluded, the sector showed virtually zero profits last year. Bank solvency ratios are still generally healthy, though with huge variations among individual banks. Weak results of banks raise expectations that consolidation in the sector and CBR revocation of banking licences will remain strong this year. 

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