Sberbank

Russian banks extend their bull run doubling profit in H1 2021

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In the first half of 2021, Russian banks earned 1.2 trillion rubles ($2.77bn), which is almost twice the result of the first half of 2020 (630 billion rubles), mainly due to business growth and lower spending on reserves, according to the preliminary data from the Central Bank of Russia (CBR).

The banking sector’s net profit in June amounted to 204 billion rubles ($2.77bn) up 191% in year-on-year terms and the return on capital being 22% in annual terms. The CBR on Monday (July 26) said the sector’s net profit this year could top 2 trillion roubles ($27 bn), barring unforeseen events.

The central bank has upgraded its forecast several times this year, previously seeing profit reaching a maximum of 2 trillion roubles.

“It was a profitable 1H21 for banks, with earnings almost doubling versus the same period last year, helped by strong retail lending, a recovery in revenues and lower provision charges,” Moscow-based investment banking and asset management firm Sberbank CIB commented.

The central bank also said that Russian lenders were responsible for around 60% of OFZ treasury bond purchases from the finance ministry in June, a month when U.S. sanctions took effect. OFZ (Federal Loan Obligations) are coupon-bearing federal loan bonds issued by the Russian government. U.S. sanctions from June 14 bar U.S. investors from buying sovereign Russian bonds denominated in roubles directly from Russia.

Russia interest rate
(Source: Russian Central Bank)

The portfolio of banks’ retail loans last month increased by 2.5% vs 2.2% in March—May. Mortgage lending grew faster, probably due to the fact that households wished to take out a loan before the conditions under the main concessional lending programme changed on 1 July.

Corporate lending, on the contrary, slowed down to 0.4% vs 1.1% in May, which corresponds to the average level of 2019.

Household funds with banks increased moderately (+0.4%) over the month after the outflow in May, while the trend towards their redistribution from deposits to current accounts remained. At the same time, corporate deposits decreased by 0.5%, mainly those in foreign currency.

The CBR raised its benchmark policy rate by another 100 bps to 6.5% on Friday (July 23), citing high inflation expectations. It was the fourth rate increase this year and came after Russia’s annual inflation rate rose to 6.5 percent in June, beating market expectations of a 6.3%. The latest reading remained well above the central bank’s 4% target and it was the highest inflation rate since August of 2016 when the key rate was 10.5%. The bank indicated that further rate increases were possible.

According to the CBR forecast, annual inflation will reach 5.7-6.2% in 2021. The next meeting of the Board of Directors of the CBR to review the level of the key rate is scheduled for September 10, 2021.