It didn’t play well in a big way – Newspaper Kommersant No. 175 (7376) of 09/22/2022

Analysts identified the business models of banks that suffered the most losses in the face of sanctions and asset freezes, depositor fears, increased currency and interest rate risks, disruption of customer supply chains that arose after the outbreak of hostilities in Ukraine. According to Expert RA, the group of banks working with large businesses and retail players turned out to be the weakest. As a result, some of the monoliners may leave the market. But banks specializing in servicing small and medium-sized businesses (SMEs) were able to earn during the period of rising rates on the placement of money in the Central Bank and strengthen their positions in the market.

In the first half of the year, the share of unprofitable banks in retail unsecured lending increased sharply to 50% against 25% yoy. These estimates, based on an analysis of 129 rated banks, are given in the Expert RA study (Kommersant has read the document). In the secured retail segment (mortgage and car loans), the share of such credit institutions increased from 14% to 29%. About 20% of banks working with large businesses received a loss, while a year ago the group was profitable. In the group of settlement and investment banks, the share of unprofitable banks increased from 17% to 20%.

The strongest decline in net fee and commission margins is observed in banks that work with consumer and auto loans (minus 0.7 percentage points (p.p.) and 0.4 p.p., respectively). This was due to a drop in income from insurance products against the backdrop of a decrease in lending.

On the other hand, SME-oriented banks turned out to be in a winning position. The increase in the key rate did not exert significant pressure on their net interest margin, Expert RA notes. The share of unprofitable banks here even decreased by 6 percentage points, to 17%. According to analysts, this was facilitated by the growth of net interest income: the banks’ business model assumes “the presence of a significant amount of assets placed on deposit with the Central Bank and other credit institutions due to the limited client base.” The absence of large volumes of securities and complex instruments also played a role.

In total, banks received 1.5 trillion rubles in the first half of the year. loss, said the first deputy chairman of the Central Bank Dmitry Tulin in an interview with RBC. About 1 trillion rubles, according to him, was generated in terms of foreign currency transactions, “due to the forced termination” of transactions with derivatives, the counterparties for which were mainly foreign banks of countries that imposed sanctions.

Experts are cautious in forecasting the development of the situation and the results of the year. From the point of view of the factors influencing the financial result of banks in the second half of the year, most likely, the negative impact of the currency revaluation will already go away, believes Elena Tsareva, an analyst at BCS. Lending is also expected to pick up in the second half of the year. Against the background of lower interest rates, the negative pressure on the net interest margin from expensive funding will decrease. This should support the level of interest income of banks, the expert notes.

However, the level of risk and the possible amount of reserves that banks will have to accrue in the second half of the year remain uncertain if the frequency of defaults increases, Ms. Tsareva specifies. Therefore, “if the sector works to zero” at the end of the year, then this will be quite a good result for the banking system, she believes.

At the same time, the reduction in the sector’s unprofitability is accompanied by a decrease in the share of the largest banks. In the first half of the year, the top 15 banks have already lost about 1.3 percentage points of market share (up to 84.6%) in favor of players ranked from 16th to 100th. Expert RA expects a decrease in the share of the first 15 players due to the outflow of customers to large regional and settlement banks. According to analysts, many companies are now in the process of choosing alternative banks, “which may lead to an increase in the rate of customer flow between credit institutions in the second half of the year.”

Over the next year and a half, medium-sized banks (from 16th to 100th in terms of assets) will continue to strengthen their market positions, says Ludmila Kozhekina, director of banking ratings at the Expert RA agency. Their share in the sector’s assets will gradually grow, but at a slower pace than in the first half of this year. First of all, the expert explains, growth will be provided by medium-sized regional players that are able to offer a competitive level of service, have developed competencies in lending to SMEs and servicing foreign economic activity.

Olga Sherunkova