The Central Bank of Russia (CBR) has raised its forecast for the profits of Russian banks in 2023, expecting results that may break the 2021 record. This comes after 2022 became the worst annual period in seven years for the sanctioned Russian banking sector in terms of financial outcome. The bank believes that by the end of the year, Russian banks could earn 1.9 trillion rubles (almost $24 billion), comparable to the profit for 2021. This optimism is based on data from the first few months of 2023.
In 2021, Russian banking institutions made a record-high 2.37 trillion rubles (close to $30 billion at current exchange rates). However, 2022 saw a sharp decline in earnings, with Russian banks making only 200 billion rubles ($2.5 billion). This is due to the unprecedented sanctions in response to Russia’s invasion of Ukraine last year, which resulted in significant losses for major banks like Sberbank and VTB.
Despite the challenges faced in 2022, Russian banks have already accumulated a record quarterly profit of 881 billion rubles in the first quarter of 2023. The Central Bank points out that excluding currency revaluation due to the weakening ruble, earnings amounted to 500 billion rubles. This positive trend has encouraged the National Credit Ratings (NCR) agency to update its predictions for this year, expecting banks’ profits in Russia to reach 2.4 – 2.6 trillion rubles and perhaps break the 2021 record.
One factor that contributed to the banking sector’s difficulties in 2022 was the CBR’s decision to sharply raise its key interest rate from 9.5% to 20%, increasing costs for banks through expensive deposits. The new forecasts coincide with the bank’s latest decision to maintain the rate at its current level of 7.5%, marking the fifth consecutive time. This decision comes against the backdrop of moderate inflation held back by the Russian economy adapting to sanctions pressures.
CBR Deputy Governor Olga Polyakova assured that the central bank will continue to support the banking sector, highlighting the bank’s risk-based regulation and supervision policies. According to the NCR, Russian banks may still need up to 600 billion rubles to cover losses on assets blocked due to Western sanctions.
While the forecasts for record-breaking profits in 2023 seem promising, it is essential to remain cautious and consider that the actual outcome may still be influenced by various factors, including the ongoing impact of sanctions, economic conditions, and geopolitical events. Overall, the Russian banking sector’s ability to rebound from the challenges of 2022 demonstrates its resilience, but it remains essential for both the CBR and individual banks to continue adapting to the changing landscape.