Profit of the banking sector by the end of 2023 may exceed 3 trillion rubles

Forecasts for the performance of Russian banks in 2023 are becoming increasingly optimistic. Expert RA analysts expect the sector’s profit for the year to be more than 3 trillion rubles, which is a third higher than the record of two years ago. However, other experts are already calling this assessment conservative. Moreover, if at the beginning of the year a significant part of the profit was provided by currency revaluation and the release of reserves, then in the future the banks will be helped by the restored net interest margin and commission income.

The net profit of the banking sector at the end of 2023 may exceed 3 trillion rubles. This assessment is contained in a new study by the Expert RA rating agency (Kommersant has reviewed it). Analysts are gradually improving their forecasts for the banking sector. For example, at the beginning of September, the rating agency ACRA predicted the annual profit of banks in the amount of more than 2.6 trillion rubles. At the end of July, the head of the Department of Banking Regulation and Analytics of the Central Bank, Alexander Danilov, conservatively estimated the indicator at a level “slightly higher” than the record value of 2021 (2.36 trillion rubles).

Meanwhile, the result of two years ago was already beaten in eight months, when banks earned more than 2.37 trillion rubles. Thus, over the remaining four months, banks can receive more than 0.6 trillion rubles, which will still be lower than the figures for previous reporting periods.

The authors of the study believe that the main profits, as before, will be received by the largest market participants.

Thus, Sberbank can earn 1.5 trillion rubles. (based on the results of eight months – 1 trillion rubles), VTB expects a profit of 400 billion rubles. Thus, the two state-owned banks will account for more than 60% of the sector’s profits. The profit of the top ten banks, according to analysts, will exceed 75% of the total result.

Expert RA notes that in 2023, the largest banks “significantly increased the level of net interest margin against the backdrop of the stability of the key rate, as well as through the conversion of foreign currency loans and a focus on the marginal retail segment.” As expected, an increase in the key rate (currently -13%, maximum since May 2022) should simultaneously support banks’ interest income. Thus, according to the latest disclosed data, almost 50% of Sberbank’s corporate portfolio is made up of loans with floating rates, while for VTB it is about 70%.

Credit institutions outside the top hundred in terms of assets will also become beneficiaries of rising rates. They usually have a large volume of placements on the interbank credit market, “so when rates rise, they receive more interest income,” while liabilities do not increase in value much, the agency explained. Banks from 11th to 100th place in terms of assets, according to Expert RA, are less dependent on rate fluctuations, since they have a higher share of commissions in the structure of operating income.

The profitability of the sector will also be supported by an increase in foreign exchange revaluation, since the return of the dollar exchange rate to 80–85 rubles/$ by the end of the year is unlikely. At the beginning of the year, the rate was slightly above 70 rubles/$.

In the first half of 2023, income from foreign exchange transactions and revaluation, as well as traditional commission and interest income, played a big role, notes B1 partner Gennady Shinin.

Profit of 3 trillion rubles. Given the current results of the banking sector, this can already be considered a conservative forecast, says Mikhail Matovnikov, head of the Sberbank financial analytics center. He admits that record profit levels could set a new benchmark for the sector in the future, as growth drivers “have a lasting effect.” “Banks have adapted to the sanctions agenda and are calibrating their risk models adequately to the current situation,” notes Mr. Shinin.

At the same time, experts point out that currency revaluation (although it brought banks 0.5 trillion rubles in profit) and the release of reserves are one-time factors. Therefore, it is important that high profits are “backed by high-quality, income-generating assets and sustainable cash flows,” says Mr. Shinin.

Among such components, Mikhail Matovnikov highlights the restored net interest margin, which helps compensate for a potential slowdown in asset growth, as well as net commission income, which is considered a reliable and stable source of profit.

Olga Sherunkova