Corporate lending in the Russian Federation is under pressure from high interest rates and reduced government support

Corporate lending in the Russian Federation is under pressure from high interest rates and reduced government support

In 2024, the rate of increase in the corporate loan portfolio in Russia will slow down. According to Expert RA, the growth of the large business lending portfolio will be 13–15% versus 24% a year earlier, and the SME portfolio growth will be 20% versus 30% in 2023. The reason for both categories will be a reduction in government support for new projects.

According to Expert RA, in 2024 the growth of the loan portfolio of large businesses will be 13–15%. This result is noticeably lower than in 2023 (24%), although higher than before the outbreak of hostilities in Ukraine (9% in 2021).

Agency analysts attribute the slowdown to the state budget deficit, which could lead to a reduction in state co-financing of new projects, and also mention the threat of disruptions in supply chains, including in the form of secondary sanctions against large non-resident financial and trading partners.

The small and medium-sized enterprise (SME) portfolio saw growth of a third per year during 2021-2023. However, by the end of 2024, the dynamics may not exceed 20%, Expert RA believes.

Agency analysts note that the demand for loans from SMEs will remain high in 2024 - the number of entities is increasing against the backdrop of low competition from foreign producers. However, state support for the segment will decrease, which will also reduce the risk appetite of banks. In addition, Expert RA clarifies that in 2024 there will no longer be a low base effect.

According to the Central Bank, at the end of 2023, the portfolio of corporate loans grew by almost 25%, to 61.36 trillion rubles, and SME loans - by 30%, exceeding 12.4 trillion rubles. According to Frank RG, bank funding of SMEs accounted for 76%, another almost 15% - leasing (see “Kommersant” dated November 16, 2023).

The slowdown in growth both in the corporate segment and in SMEs “will most likely become its normalization,” says Roman Kornev, director of bank ratings at the Expert RA agency. “The high rates of lending last year and the associated increase in the debt burden could very likely lead to the maturation of certain problems and, as a consequence, an increase in the share of overdue loans and their provisioning,” the expert warns.

Large businesses will not have significant problems with access to financing. “Business has access to a fairly wide range of financial instruments, including, for example, the issue of bonds and shares,” notes Mr. Kornev. “Credit demand for structural restructuring of the economy is very high, and the high key rate does not cool it,” Dmitry Pyanov, First Deputy Chairman of the Board of VTB, emphasized in March.

Elvira Nabiullinahead of the Bank of Russia, December 15, 2023:

“Even after paying dividends, the banks’ profits, which can go into capital, will be significant... This will enable banks to continue to increase lending to the economy...”

“Contrary to expectations, the increase in the key rate did not have a negative impact on the rate of issuance of financing in the segment of large corporate business,” PSB claims. Moreover, the bank even expects “some growth in the pace of lending in the segment due to the expansion of financial support opportunities for existing clients and the attraction of clients from new industry niches.”

But the SME segment may “have to reduce investment plans and operating costs,” admits Mr. Kornev. Some of the financing needs can be met through leasing and factoring transactions, the expert admits (see “Kommersant” dated January 19).

Banks are a little more optimistic and expect a slowdown in the pace of business lending no earlier than next year. If inflationary pressure does not decrease and a decision is made to leave the rate at the current level, says Dmitry Boyko, director of the small business department at Rosbank, we can expect a decrease in lending growth in 2025.

Polina Trifonova

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