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Russian banks reported record profits last year fuelled by a rush to take out government-subsidised mortgages, as well as a boom in financing to purchase assets being sold by western companies exiting the country.
Despite strict international sanctions intended to isolate the Russian financial system as punishment for its full-scale invasion of Ukraine, its banks generated Rbs3.3tn ($37bn) in 2023, up about 16 times from the previous year, the Russian Central Bank (CBR) said in a report published on Tuesday.
The performance came as “somewhat of a surprise”, said Alexander Danilov, the head of the CBR’s banking regulation department. In March the regulator had estimated profits would be more modest and only “exceed Rbs1tn ($11bn)”.
The record profits are another sign of the relative resilience of the Russian economy despite US and European efforts to hurt it via trade restrictions and other punitive measures. On Tuesday the IMF said it now forecast Russia’s economy to grow 2.6 per cent this year, twice as fast as expected in October.
A large part of the country’s banking sector has been cut off from the Swift international interbank payment system and has little or no access to western capital markets as a result of the war in Ukraine.
A 34.5 per cent surge in mortgages was the primary reason for the jump in bank earnings, driven by a generous government stimulus programme designed to galvanise consumer demand. Subsidised mortgages accounted for more than half of the new home loans.
The CBR’s key interest rate stands at 16 per cent following five increases that began in July when the rate was 7.5 per cent. It is nearing the all-time high of 20 per cent reached in the direct aftermath of the invasion of Ukraine.
While general interest rates in the Russian mortgage market are about 14 per cent, subsidised home loans are issued at up to 8 per cent — and 6 per cent for young families — with the difference covered by the state budget.
Russian citizens were rushing to take out mortgages either due to the fear that the programme would not be extended beyond the summer, or to quickly invest devaluing roubles in real estate, the CBR report said.
Policymakers and regulators have expressed concerns that subsidised loans are having a counterproductive effect, overheating house prices instead of making housing more accessible and stimulating demand.
Another contributing factor to the domestic credit boom is lending to those purchasing assets from international companies, which have either been forced to sell due to sanctions or which have been expropriated by the state.
Banks’ aggregate corporate credits portfolio grew by more than 20 per cent in 2023, with Rbs500bn of new loans related to the deals with foreign companies leaving Russia, according to the CBR report.
Lenders’ capital and balance sheets were also flattered by a reduction in risk costs due to the relaxation of regulatory requirements and a significant currency revaluation, the report added.
“The banking sector looks stable and I do not see any red flags at the moment,” said Alexandra Prokopenko, a non-resident fellow at Carnegie Russia Eurasia who previously worked for the CBR. “The sector is accumulating money again. Should the Russian economy face another external shock, it will have buffers that can be deployed — and the government will not have to spend money to bail it out.”
