Russian banks see profits recovery in June
However, the profits were twice higher in 2019
Russia’s banking sector saw a revival both in retail deposits and profits in June, although banks are still under pressure due to declining household incomes and the Central Bank’s flexible interest rate policy. Last week, the regulator decreased the key rate for the fourth consecutive time in 2020 with low inflation and economic turmoil making new cuts possible.
Profits in Russia’s banking sector rose from just 500 million rubles in May to 70 billion rubles ($975 million) in June, says Reuters citing the Russian Central Bank’s latest report. According to the regulator, last month’s result was still much lower than the average monthly profit in 2019, which totalled around 140 billion rubles.
According to the report, bank retail deposits rose by 1,9% in June, compensating for seasonal outflows in the first five months of 2020 and the trend of stockpiling cash caused by coronavirus-related restrictions. The increase is attributed mainly to a family support programme, which saw the government hand out around 290 billion rubles to citizens. Overall, deposits increased by 1,2% in the first six months of 2020, with Russian banks making a profit of 630 billion rubles ($8,1 billion). At the same time, long-term ruble deposits, which are an important source of bank funding, fell for the first time since early 2018, while short-term deposits up to 30 days drove the growth.
Russia’s banking sector is under pressure due to declining household incomes linked to the economic fallout from the coronavirus pandemic and a series of consecutive key interest rate cuts by the Central Bank. According to Sberbank’s Chief Analyst Mikhail Matovnikov, customer behaviour has changed during the pandemic, with people trying to avoid visiting banks and therefore opening accounts less often. He points out that consumption has decreased more than income, allowing people to accumulate savings. “The state of market stagnation could last from six months to a year,” considers CEO of Moscow-based consultancy Frank RG Yuri Gribanov.
On Friday, the Central Bank cut the key interest rate to a record low of 4,25% and said more cuts were possible. “If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at its upcoming meetings,” reads the Central Bank’s statement. Market experts believe that the regulator will continue lowering rates later this year. Russia’s largest lender Sberbank expects the key rate to drop by another 25 basis points in September.
The Central Bank has also revised its economic forecasts: it expects the economy to contract by 4,5-5,5% this year before returning to growth in 2021. In the second quarter of 2020, Russia’s GDP decreased by 9-10%. Inflation, which is the Central Bank’s key area of responsibility, is expected to total 3,7-4,2% in 2020 and stabilise near its 4% target figure in 2021 and 2022.