Profit reserves – Newspaper Kommersant No. 16 (7461) of 01/28/2023

The Bank of Russia summed up the overall performance of the banking sector in 2022 and gave a forecast for 2023. If it weren’t for regulatory easing in terms of reserves and currency accounting, banks would not have shown a profit of more than 200 billion rubles, but a loss of several hundred billion. However, the partial cancellation of benefits in 2023 will have little effect on the financial results of banks – the foreign exchange market in the Russian Federation has seriously changed, and enough reserves have already been created. As a result, banks, according to the forecast, will be able to earn 1 trillion rubles this year.

According to the results of 2023, Russian banks can show a profit in the amount of over 1 trillion rubles, rather cautiously expressed on press conferences January 27, the first estimated expectations of the Central Bank Director of the Department of banking regulation and analytics of the regulator Alexander Danilov. Thus, profit can grow five times against a serious drop in 2022 (203 billion rubles), but will not reach the record in 2021, when banks earned 2.4 trillion rubles.

Last year, as follows from the data of the Central Bank, net interest income (4.2 trillion rubles) and net fee and commission income (1.6 trillion rubles) grew even in a relatively successful 2021, as the margin of banking operations recovered rather quickly and business volumes managed to build up. The most negative impact on the sector’s profit was the reserves that banks had to form in connection with the reassessment of risks and the current situation. They grew from 0.5 trillion rubles. at the end of 2021 to 2.5 trillion rubles. at the end of 2022. Last year, the volume of reserves barely doubled the indicator of the covid period, the Central Bank noted. It is natural that banks added the largest amount of reserves in the second quarter of 2022: 567 billion rubles. on corporate loans, 205 billion rubles. for retail loans, 261 billion rubles for other assets. At the same time, already in the third quarter of 2022, reserves for 85 billion rubles were dissolved.

In the second half of 2022, according to Mikhail Matovnikov, chief analyst at Sberbank, the rapid recovery in the profitability of the banking sector was clearly also due to the dissolution of previously created reserves.

At the same time, reservation could work differently for different groups. “Someone decided to leave the problems in 2022, accruing all the reserves, someone accrues as much as they can,” the expert notes.

Reduced last year’s profit by 408 billion rubles. and negative revaluation of foreign exchange assets and derivative financial instruments (DFIs).

Profit last year was not the lowest. For example, in 2015 banks earned 192 billion rubles. At the same time, the final result of 2022 was supported by easing by the Central Bank, including in relation to part of the reserves and fixing the exchange rate. However, the Bank of Russia does not believe that this greatly distorted the financial results.

According to Alexander Danilov, if we clear the result of 2022 from the concessions introduced by the regulator, then at the end of last year the banking sector would have shown a loss of “several hundred billion” rubles.

This year, according to Valeriy Piven, Head of the Financial Institutions Ratings Group at ACRA, a significant additional provisioning is unlikely: the newly created volume of reserves in 2023 may be lower than the previous year. “The maturation of bad loans in past crises took about two years,” says Olga Naydenova, an analyst at the Sinara investment bank, “and now it may take longer, as sanctions pressure on the economy is growing gradually.” By now, according to her, “banks have created a good macro allowance and are unlikely to quickly dissolve this cushion of reserves in the current conditions.”

At the same time, the formed reserves should be divided into two groups: for frozen assets and for the loan portfolio, analysts say. “For the loan portfolio, expectations regarding the dynamics of the formation of reserves are rather moderately positive, since the extremely negative expectations that dominated at the beginning of 2022 did not fully materialize,” says independent expert Olga Ulyanova. However, in terms of reserves for assets frozen due to sanctions, the situation is unpredictable. “Most likely, we should expect additional accrual of reserves, this process will be extended for several years,” Ms. Ulyanova estimates.

Since this year, the easing in terms of fixing the exchange rate has ceased to operate, although a number of other concessions for banks remain. This year’s financial result will be most affected by the cancellation of the relief on the creation of reserves, Mr. Piven believes. With regard to the formation of reserves for loans to companies, the Central Bank’s relaxations are valid until June 30, 2023, in terms of individuals and SMEs – until the end of 2023.

At the end of 2023, according to Mr. Matovnikov, the net profit of banks will exceed 1 trillion rubles, which is consistent with the expectations of the Central Bank.

And, according to the expert, this is a “very conservative estimate.” Valery Piven expects that the profit will amount to 950 billion rubles. Be that as it may, Olga Ulyanova notes that, as in 2022, the profit for the current year will be distributed unevenly among banks. According to her, the sector’s profit will be generated mainly at the expense of Sberbank (in 2022, its financial result amounted to 300 billion rubles, see “Kommersant-Online” of January 17), Raiffeisenbank, as well as several relatively large banks that did not fall under the sanctions.

Olga Sherunkova