The Central Bank of Russia (CBR) has raised its 2023 profit forecast for the country’s banks, expecting numbers that could break the record set in 2021. This comes after 2022 was the worst annual period in seven years for the sanctioned Russian banking sector, in terms of financial outcome. Data from the first few months of 2023 have given the CBR reason to believe that by the end of the year, Russian banks could earn RUB 1.9tn ($24bn), or even more, which would be on par with the profits registered in 2021. Two years ago, Russian banking institutions made a record-high RUB 2.37tn ($30bn), according to business daily Vedomosti. Meanwhile, the National Credit Ratings agency (NCR) has updated its predictions for this year, expecting even more positive results than the CBR for the banking sector, with profits in Russia potentially breaking last year’s record of RUB 2.4tn-2.6tn ($30.4bn-$33bn).
The CBR initially projected that net profits in the banking sector would reach RUB 1.2tn-RUB 1.5tn ($15.7bn-$19.6bn) this year and RUB 1.2tn-RUB 1.7tn ($15.7bn-$22.3bn) in 2024 when it released its baseline projections in March. These estimates were made after 2022 became the worst year for the industry in a seven-year period when Russian banks earned only RUB 200bn ($2.6bn).
Amid unprecedented sanctions as a response to Russia’s invasion of Ukraine last year, the state-owned bank Sberbank registered net profits of just RUB 300bn ($3.8bn) in 2022, marking a 75% decline over the previous year, while Russia’s second-largest bank, VTB, registered a record loss of RUB 756bn.
However, in January-March 2023, Russian banks have already accumulated a record quarterly profit of RUB 881bn, the CBR pointed out, and noted how earnings amounted to RUB 500bn ($6.5bn) after any currency revaluation due to the weakening of the ruble was excluded from the calculation. The new forecasts coincide with the CBR’s latest decision to keep the rate at 7.5%, its fifth consecutive hold period against the backdrop of moderate inflation triggered by the Russian economy adapting to sanctions.
“We will continue to help the banking sector adapt. We will create all the necessary conditions where possible,” said Olga Polyakova, Deputy Governor of the CBR, while emphasising that the CBR’s risk-based regulation and supervision policy and its decade-long work on Russia’s financial recovery have helped banks to survive crises like those of 2020 and 2022 without significant losses. Nevertheless, the banks may still need up to RUB 600bn ($7.8bn) to cover losses on assets blocked due to Western sanctions, according to the NCR.
In summary, the CBR has raised its profit forecast for Russian banks for 2023 after the sector recorded its worst yearly financial outcome in seven years in 2022 due to sanctions. Data from the first few months of this year support the bank’s projection, and the NCR expects results that may break the record set in 2021. Consequently, the Russian banking sector may enjoy significant profits in the near future, even though the banks may still need billions of dollars to cover losses on assets blocked due to Western sanctions.
