Russian banks post record profits in 2021

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Russian banks posted record profits in 2021, boosted by the economic recovery, a housing market boom and rapid growth in consumer borrowing, the Central Bank says noted Friday.

The banking sector recorded a combined total of 2.4 trillion rubles (about $33 billion) in profits for the year – up 50% from 2020 – according to new data.

Performance was driven by Russia’s rapid recovery from the financial blow of the coronavirus, as the Kremlin avoided calls for lockdowns or tough restrictions even when cases rose, instead prioritizing keeping businesses open and reviving the economy.

“It was an extremely successful year for the banking sector, with a significant increase in business and record profits,” Alexander Danilov, head of banking supervision at the Central Bank, said at a press briefing on Friday.

But the regulator stressed that it saw signs of concern in the strong performance of the sector.

Demand for mortgages rose by a record 30% for the year, pushed up by a lodging and the construction boom after Russia’s strict pandemic lockdown in the first half of 2020. Even a tightening of the government’s subsidized mortgage program failed to stifle demand as property prices surged throughout Russia over the past 18 months.

With living standards and incomes under pressure from high inflation and weak wage increases, consumer lending grew by a fifth in 2021 and monthly data shows borrowing picking up pace the fastest since before the pandemic.

“Such rapid growth worries us, Danilov said on Friday.

“It’s not just 20% growth a year that’s a problem, but the fact that loans are growing faster than people’s incomes, and also that there’s no influx of new borrowers . To a large extent, people who borrow new lines of credit are already in debt, so their personal debt increases.

The Central Bank has been struggling for years to stem consumer credit growth without tipping Russia’s already fragile economy into recession. He tightened rules on who banks can lend to, requiring them to carry out income checks and not issue new credit when loan repayments would make up a significant portion of a borrower’s monthly income.

Danilov said those rules would be tightened further later this year, hoping to bring borrowing growth down to around 15% a year and “to prevent the development of systemic risks.”

A separate survey published Friday by the Equifax credit rating bureau showed that microloans – or payday loans – were the fastest growing type of credit in Russia.

The Central Bank also said record profits in 2021 provided a cushion for Russian banks during a volatile early 2022 which saw a massive sell-off of Russian assets amid growing fears of a possible Russian invasion of Ukraine.

Banks have lost about 200 billion rubles ($2.6 billion) from their balance sheets, mainly due to the fall in the price of Russian government bonds. Falling bond prices imply a higher level of risk as investors fear possible sanctions against the Russian economy that could limit their ability to trade government debt.

The Central Bank of Russia raised interest rates aggressively in response to the surge inflation over the past 12 months. The latest market volatility has pushed expectations for the duration of the cost-of-living crisis, with analysts expecting another significant rate hike at the bank’s meeting in mid-February.

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