As reported on Friday by the country’s central bank, consumer lending growth witnessed a sharp decline as a result of the high interest rates.
Here are the key highlights:
- Interest Rate Hikes: The Bank of Russia raised interest rates by 350 basis points to 12% in a surprise move in mid-August. The rates were further increased to 13% in September. These hikes were primarily in response to efforts to stabilize the rouble. Another rise in borrowing costs is anticipated in the coming central bank meeting.
- Profit Decline: Profits of Russian banks decreased to 296 billion roubles (approximately €2.92 billion) in September, down from 353 billion roubles in the previous month.
- VTB Bank’s Warning: VTB Bank, Russia’s second-largest lender, indicated last month that the heightened rates might negatively impact banks’ profits in 2024. Nevertheless, the banking sector is projected to register record profits this year. As quoted by Reuters, Dmitry Pyanov, the CFO of the bank, stated that they anticipate a reduction of around 15 billion roubles in interest income for every one percentage point rise in the main rate. Despite this, Pyanov remains optimistic about 2023, anticipating record figures by its conclusion.
- Overall Banking Sector Profit: For the period of January to September, the entire banking sector in Russia reported a profit of 2.4 trillion roubles. The central bank expects this figure might escalate to nearly 3 trillion roubles by the year-end.
- Foreign Currency Reserves Dwindling: The central bank warned of a likely decrease in companies’ foreign currency reserves held in banks in the coming months. This is attributed to new capital control measures introduced recently. As per a decree from President Vladimir Putin, 43 exporter groups are now mandated to repatriate 80% and liquidate 90% of their FX earnings. On a related note, the foreign currency reserves of households also witnessed a decline in September, reducing by $900 million (equivalent to €850 million).
In conclusion, the efforts to stabilize the rouble, while necessary for the Russian economy, have had a tangible impact on the profits of banks in the country. The coming months will be crucial in determining the long-term ramifications of these policies.