At the end of nine months of 2023, the number of unprofitable banks decreased by 10, but their total loss increased to 34 billion rubles.

According to the results of three quarters, Russian unprofitable banks worsened their financial results, their losses increased by 10%, to almost 34 billion rubles. The results could have been affected by rising funding costs and provisioning costs for bad loans. At the same time, the banking system as a whole maintains high profits generated by the largest banks. Based on the results of nine months, it amounted to 2.7 trillion rubles.

At the end of nine months of 2023, the number of unprofitable credit institutions decreased by 10, to 51, but the total loss of such players increased by more than 10% – from 30 billion to almost 34 billion rubles. This is evidenced by Kommersant’s assessment based on the reporting of credit institutions, published on Wednesday, October 25, on the Central Bank website. However, most of this loss—RUB 15.3 billion—accounted for only VUZ-bank, which has been undergoing rehabilitation by the Ural Bank for Reconstruction and Development (UBRD) since 2015. It has remained consistently the largest loss-making bank since disclosure resumed. A significant part of the loss was generated in June (over 7 billion rubles). Subsequently, losses did not exceed 2 billion rubles. per month, according to the bank’s reporting.

Another outsider was UBRD, whose loss since the beginning of the year reached 5.7 billion rubles. It also became the leader among all banks in terms of losses for September (almost 2.5 billion rubles). ACRA’s latest rating press release at the end of May this year noted that “in addition to factors related to the instability of financial markets in 2022, which became the main the source of the loss, the formation of the financial result was influenced by the low operating efficiency of the bank, including the limited level of net interest margin.” According to analysts, the bank’s ability to generate capital is low. Moreover, as analysts noted, as part of the reorganization of VUZ Bank, UBRD “takes advantage of regulatory relaxations, according to which it may not comply with standards at the group level, which, among other things, allows it to accept increased credit risks associated with lending to large borrowers.” The banks themselves did not respond to Kommersant’s request.

Banks also entered the top 5 in terms of losses for three quarters “Zenith” (RUB 1.8 billion) and “Renaissance Credit” (RUB 1.7 billion), as well as being rehabilitated Gazenergobank (RUB 1.75 billion). At Renaissance Credit, the loss is called “forecast”. The bank purposefully increased operating costs and capital investments for business transformation and digitalization, following the strategy adopted in 2022, they explained.

The losses of most of the remaining banks amount to less than RUB 1 billion. A number of banks that are or were owned by non-residents continue to have negative results – Goldman Sachs Bank, UBS Bank, American Express Bank, Natixis Bank, etc.

The deterioration in the financial results of unprofitable banks in September 2023 was relatively smooth, notes banking expert Alexey Nechaev.

“Probably their main problems, which are often individual, have been aggravated by rising funding costs,” he believes. In August-September, the Bank of Russia twice raised the key rate by a total of 4.5 percentage points, to 13%. Accordingly, rates on the debt market increased sharply.

The reasons for the increase in losses of individual banks can be judged very roughly by comparing quarterly financial results reports. In particular, according to the expert, in the third quarter, VUZ Bank’s interest income did not cover interest expenses, losses on transactions with derivative financial instruments and on assignments grew (the latter may indicate the sale or purchase of a loan portfolio, which could be unprofitable). “For UBRD, the source of the quarterly loss was losses on the loan portfolio, which “ate up” the bank’s extremely modest net interest income before reserves,” points out Mr. Nechaev. Most likely, the same factors put pressure on the financial results of other banks in the last reporting period.

In general, at the end of September, the banking sector slightly reduced its net profit due to a decrease in income from currency revaluation, earning less than 300 billion rubles. Since the beginning of the year, the net profit of the banking sector amounted to 2.7 trillion rubles. It was provided by the largest, mainly systemically important banks.

According to Kommersant’s estimates, the top 5 banks in terms of profit included Sberbank (1.1 trillion rubles), VTB and GPB (167 billion rubles each), Raiffeisenbank (93 billion rubles), Alfa Bank (86 billion rubles .).

However, the results of individual large banks are volatile. For example, VTB’s profit for the four disclosed months shows sharp fluctuations, sometimes exceeding 20 billion rubles, sometimes falling below 2 billion rubles. In September, VTB’s profit fell 17 times compared to August, to 1.35 billion rubles. The bank did not answer Kommersant.

Olga Sherunkova