Russian banks begin reporting for 2023 under IFRS
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Russian banks are beginning the season of disclosing annual reports under IFRS. Although the Central Bank does not force credit institutions to go public, the data turned out to be more complete and voluminous than a year ago. The openness can be explained by good results, in particular, record profits, although already in December many banks sharply increased expenses and the number of unprofitable credit institutions increased by almost 1.5 times compared to November. Market expectations for 2024 are also much more modest given the continued high key rate.
VTB is second in terms of assets in the Russian Federation (.pdf), Rosbank (12th place) and SME Bank (65th place) (.pdf) disclosed the results of work in 2023 under IFRS. Sberbank plans to do this at the end of February, at MKB – on March 1, at Sovcombank – on March 15.
As follows from the last decisions of the board of directors of the Central Bankfor 2024, credit institutions retain the right not to publish consolidated financial statements, starting with reporting for 2023.
However, judging by the banks’ first publications, this year they decided to disclose more information than last year and make it more diverse. For example, VTB resumed publishing segmental business analysis (it was not included in the 2022 report). But in general, the format remains compressed and “sanction-sensitive information, for example” related to international business segments is not disclosed at all.
All banks that disclosed their IFRS reports showed improved financial results.
Thus, VTB’s net profit reached a record 432.2 billion rubles. against a loss of RUB 667.5 billion. based on the results of 2022. Sovcombank showed a profit of 95 billion rubles. against a loss of 14.3 billion rubles. (information from the bank’s previously published message before the IFRS report). Rosbank increased its annual profit by 5.9 times, to 28.8 billion rubles.
At the same time, high profits during the year allowed banks to increase expenses towards the end. Thus, according to the Central Bank, in December last year there were 105 unprofitable banks (according to RAS reporting), while in November there were only 71 banks.
According to Kommersant’s calculations, the leaders in net loss in December were Gazprombank (GPB, 60.8 billion rubles), PSB (14.7 billion rubles) and Rosselkhozbank (9.8 billion rubles). The GPB did not answer Kommersant’s questions. PSB noted that for the entire 2023 they received a record net profit under RAS – 98 billion rubles. At the same time, the bank plans to increase profits in 2024. The RSHB noted that the results, taking into account the events after the reporting date, for the year will show “good dynamics” relative to 2022.
The Central Bank explained the increase in the number of unprofitable banks in December for several reasons.
In particular, since banks had already performed very well in previous months, some of them “may have taken a more conservative approach to provisioning at the end of 2023.”
In addition, the Central Bank clarified, “the corporate loan portfolio is gradually maturing, banks are recognizing losses.” Some credit institutions recorded losses from one-time transactions, which were not related to general trends in the sector. The Bank of Russia also allows for “the traditional end-of-year increase in operating expenses, including due to bonus payments and high advertising costs.”
Elvira Nabiullina, head of the Bank of Russia, at the “Focus on the Client” conference on November 28, 2023:
“The banks are back in good shape, it’s time to think about development.”
Operating expenses of banks have a “pronounced seasonality” with an annual increase in the last quarter of the year, noted Ivan Uklein, senior director for bank ratings at the Expert RA agency. For example, according to IFRS, almost a third of VTB’s annual operating expenses occurred in the fourth quarter of 2023, he explained.
The high key rate, which has remained at 16% for three months, also has a negative impact on the results of banks. Since the Bank of Russia has revised the forecast for the average key rate for 2024 upward to 13.5–15.5%, notes leading analyst at Digital Broker Daniil Bolotskikh, “pressure on the profits of the banking sector will continue.”
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