2021 Tatarstan banking sector: most financially successful year in history

Earlier last January, Russian analysts confidently made optimistic forecasts for the development of the banking market summing up the first year of the coronavirus pandemic. Tatarstan with its not such a big banking sector didn’t stand out against general trends in the country. Realnoe Vremya’s columnist, economist with long-term banking experience Artur Safiulin offers to consider what expectations of market experts became a reality, what didn’t and why.

State of the sector and outlooks in early 2021

Tatarstan is the most developed market of financial institutions in the Volga area — 13 banks have headquarters in our republic. It is 30% of the total number of banks registered in the Volga Federal District in general.

The crisis in 2020 was different for the banking system of the country, including for Tatarstan, than in 2008 and 2014. The contrast between 2021 and 2014-2015 was especially notable when the banking sphere, insurance significantly decreased, interest rates as well as deposits suddenly went up, from 10-12% to 20%. As a consequence, many banks didn’t survive that crisis, they didn’t withstand the load and an outflow of depositors’ money.

In 2020, it became possible to avoid licence revocation, some banks even showed portfolio growth at the end of the year. This became possible partly because of state support measures taken via banks for the population and businesses, which is additional liquidity for financial institutions, the crucial component of the banking business. So the sector’s profit reduced insignificantly, though the worst was expected in 2020. If the total decline of profit in all the sectors of the country’s economy was some 40% in 2020, the fall in the banking sphere was just 6,3% compared to 2019.

The key went up going down throughout 2020, followed by loan rates. During the pandemic, the Central Bank stimulated the economy strictly according to the economics textbook. Thanks to lessons of previous crises, there were created sufficient reserves, risk insurance and borrower verification mechanisms improved, granted loans were extended. All these measures allowed saving the stability of the banking sphere.

Banks’ assets in 2020 grew, but this happened mainly due to the currency revaluation (the ruble fell by 20%) and investments in banks’ securities. While liabilities (companies’ money on accounts, natural persons’ deposits) climbed by 60%. It is no surprise because both legal entities and natural persons chose the tactics of saving, accumulation and expectation amid economic uncertainty. The amount of money on accounts and deposits in Tatarstan amounted to 651 billion rubles by early February 2021. This is by 5,1% more than in 2020. Savings in rubles held 85% of all attracted money, or 556 billion rubles. Over the year, the sum rose by 4,9%. Deposits in currencies increased by 6,5% and reached 95 billion rubles (the equivalent).

There was a sudden rise in mortgages, thanks to state support programmes. Due to record-low mortgage rates, refinancing programmes of previously taken out mortgage loans were in high demand. One in four mortgages was granted in the refinancing programme. It is forecasted that it was expected in 2021 that refinancing would go on and the competition between banks for clients in this product would get stronger. The next prolongation of the mortgage programme with state support at 6,5% was doubted. At first, Tatarstan wasn’t on the list of 24 regions where the programme was planned to be extended in 2020.

When it comes to overdue payments, overdue repayment of natural persons’ loans increased insignificantly in 2020. Legal entities didn’t show serious growth in overdue payments. Only 57 in 365 banks operating in the country in general had over 20% of overdue loans in the portfolio.

In general, experts forecast that the lending pace for legal entities was expected to slow down in 2021 because of stiff competition with bond markets (bonds, etc.) and pent-up effects of a lower quality of loans and the necessity of creation of additional reserves. A slowdown was also forecasted in mortgages, partly because of the expected tighter monetary policy of the Central Bank, which already started to talk about higher inflation out of range.

The growth of consumer and car loans was forecasted to grow from 6-7% in 2020 to 12% in 2021.

Due to low deposit rates for natural persons and legal entities, it was predicted banks would face difficulties when attracting money. Higher competition with brokers and management companies awaited banks because clients exchanged their money for currency and financial market instruments. In 2020, the number of Tatarstan residents who have an individual investment account doubled. At Moscow Exchange, Tatarstan residents had 95,500 accounts. The turnover (purchase and sale of stocks and other financial instruments) totalled 57 billion rubles in 2020. In this indicator, Tatarstan was fifth in the country and third in the Volga Federal District.

Preliminary results of 2021

Tatarstan banks showed growth of indicators and income in all areas of activity in general. It can be confidently claimed that 2021 became the most successful for banks in history. The Central Bank forecasts the profit of the country’s banking sector to reach 2,5 trillion rubles this year, which is 1,5 times higher than during the best years. The so-called banking health index was 91,5%, and this is the best result in the last two years. Higher interest incomes amid rapid lending growth became the main reason for the profitability.

The general portfolio of retail investors in particular was 190 billion rubles. The value of their assets traded by brokers rose by 2,8% to 172,3 billion rubles. The discretionary account portfolio increased by 12,5% and was equal to 16,9 billion rubles. A natural person’s average portfolio serviced by a broker shrank by 12,3% compared to July and totalled 322,700 rubles. The

discretionary account portfolio decreased by 8,1%, to 1,5 million rubles. Growing deposit rates played their role, not everybody is ready to risk in the stock market and go back to banks.

The amount of money on escrow accounts made up 51,3 billion rubles in early November, the growth was 56,5% since the beginning of the year. The number of accounts was 13,300 and rose by 40% since the beginning of the year.

39,1 billion rubles were transferred from escrow accounts to repay developers’ loans, growing 5,3 times. The number of escrow accounts augmented 4,5 times since the beginning of the year and ran at 10,700. The total limit of valid credit agreements with developers constituted 123,3 billion rubles, rising twice since the beginning of the year.

Mortgages demonstrated 30,3% growth in 10 months of 2021 and were 137,9 billion rubles in the total amount. The number of mortgage loans rose by 11,1% reaching 54,800 agreements. The total mortgage portfolio in early November was equal to 338,2 billion rubles, the growth is 24,8%. The share of overdue payments is 0,4% of the total size of the mortgage portfolio (to compare, this indicator is 0,6% in general across the country).

The amount of money of natural persons on deposit grew by 7,1% by early November amounting to 703,4 billion rubles, growing by 9,3% since the beginning of the year. Deposits in foreign currencies fell by 4,7%, to 97 billion rubles (the equivalent). The tactics of saving, accumulation and expectation amid economic uncertainty continues working.

The amount of money on legal entities’ deposit accounts was 528,4 billion rubles by early November, the growth was 39,1% compared to 2020, that of sole traders was 20,6 billion rubles, 13,8% growth, the money on organisations’ accounts declined by 3,8%, to 240,1 billion rubles.

The mortgage dynamics in general slowed down. Compared to the same period in 2020, the growth was 28-30% at the beginning and in the middle of the year and decelerated to 18-19% at the end of the year.

Retail lending dynamics accelerated. Compared to the same period in 2020, the growth was 16-17% at the beginning and in the middle of the year and gained speed to 26-27% at the end of the year.

Lending dynamics to legal entities speeded up. Compared to the same period in 2020, the growth was -10-12% at the beginning and in the middle of the year and started to grow to 21-22% at the end of the year.

Mass digitalisation of financial services

In conclusion, it is noteworthy that our local banks, which aren’t big, are under special market pressure. It is especially tough for regional banks that are far from the top 100 Russian banks, don’t belong to financial and industrial groups, don’t have industrial, big clients to compete.

In the future, amid high inflation in the country, the population’s real incomes will fall, which will lead to a reduction in the number of good borrowers.

Also, the Central Bank is already taking measures to cool the consumer lending market down — new regulatory requirements will decrease the pace of granting new loans. The existing volatility of financial markets, its influence on the currency revaluation and the cost of securities will put pressure on banks’ profits.

Due to the lower profitability of the traditional banking businesses and higher competition for clients against fintech companies, financial institutions have to look for new income sources. Big banks increase their investments in related areas of the financial sector — insurance and leasing business. For instance, in the last five years, the share of leasing companies in the financing of a new leasing car fleet rose from 39 to 50%. This is no surprise, since this area is the most diversified and attractive from a perspective of profitability.

In general large-scale digitalisation of financial services awaits us. There will be adopted a law on the access of small and mid-sized businesses to services of financial platforms (marketplaces) soon. Now products for natural persons are offered at marketplaces — deposits, mandatory automobile insurance, open-end funds, off-exchange bonds. After the law is adopted, legal entities and sole traders will be able to use the platforms, credit products and much more will be added. It will be interesting to see the banking business develop in the near future.

Artur Safiulin

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The author’s opinion does not necessarily coincide with the position of Realnoe Vremya’s editorial board.