Banking sector of Russia after clearing by the Central Bank
Russian banks have suffered large quantitative losses in recent years, but the state of the sector as a whole has improved significantly. The banks have concentrated a huge amount of liquidity, which they prefer to keep at the Central Bank and direct it to the consumer loan market; the real business gets almost nothing.
Banking sector is cleared
On May 30, 2019, the chairman of the Russian Central Bank, Elvira Nabiullina, announced that the main stage of the recovery of the banking sector had been completed. Since the start of clearing, the number of banks in Russia has more than halved, and in the first three months of this year it has decreased by only ten, the minimum value over the past five years. In total, about 4.5 trillion was spent on clearing the banking sector, including reorganization, recapitalization of rehabilitated banks and payment of compensation for deposits.
The Deposit Insurance Agency (DIA), which mainly deals with the reorganization of troubled banks, for the first time since the start of clearing the banking sector in 2013, has managed to practically achieve selfsufficiency. Earlier, bank insurance premiums were not enough to pay deposit compensations, and the DIA had to resort to loans from the Central Bank (0.8 trillion.).
Additional sources of funding (except bank insurance premiums) (кроме страховых взносов банков)
* by government and Central Bank
As a result of clearing, the monopolization of the sector has increased as expected - now 64% of the assets belong to the five largest banks. In addition, state-owned banks continue to strengthen their dominance, displacing loan institutions with private capital and foreign participation from the market.
Share of banks by assets in the assets of the entire banking system
The share of state, foreign and private banks in the assets of the entire banking system
Excess liquidity remains
The Russian banking system has been living in excess of money for the third year. The structural liquidity surplus1, although it has been reduced recently, is still very high. The excess of deposits over loans, previously unusual for the system, is gradually becoming commonplace. Even a slight revival of lending cannot yet turn the tide
Loans and deposits (only individuals and legal entities, without loan institutions)
Excessive liquidity of banks is heating up the consumer lending market. The interest rate on such loans is much higher than on corporate loans. Banks have enough capital to create reserves for possible losses required for unsecured loans to individuals without special problems. Thus, in the event of market problems, banks have a margin of safety.
Capital adequacy ratio (Н1.0), instant liquidity (Н2) and the requirements of the Central Bank of the Russian Federation for their minimum level
For many Russians, against the backdrop of declining real incomes2 for the fifth year in a row, maintaining a familiar lifestyle is only possible on loan . Debt burden (PTI)3 is especially high among the lowest income groups. Although it decreased slightly over the previous year, it still remains high, saying that the poorest Russians spend 28% of their income on loan servicing.
The growth of the mortgage market has actually stopped; in April and May 2019, fewer loans were issued than a year ago. Since the end of last year, the rate began to rise, which stopped the growth of loans.
The dynamics of mortgages to individuals-residents in rubles
* last value for May
1Structural liquidity surplus means the excess of bank deposits with the Central Bank over loans from the Central Bank, which allows banks to have more free funds
2From 2013-18 real incomes of the population fell by 11%, given the lump sum payment to pensioners in the amount of 5 thousand rubles in January 2017.
3Payment to income (monthly payments on all loans to monthly income)
Only consumer loans really grow
In general, the loan portfolio of Russian banks has stagnated since the end of 2015, not increasing even in nominal terms. The situation changed in the middle of last year, the volume of loans began to grow steadily. However, most of the growth is due to consumer lending, the ratio of such loans to GDP reached pre-crisis levels, exceeding 14%. Compared to other countries, this value is small (in the USA, for example, the similar indicator exceeds 70%, in China - 50%), but it should not be considered isolated from other factors, in particular from interest rates and the share of the population’s expenses on servicing loans.
With lending to the real sector, the situation seems less optimistic. The growth of nominal volumes there is much weaker, the ratio to GDP not only remains significantly lower than the pre-crisis values, but also continues to decline overall. It is especially alarming that this is happening amid inflation, which is growing faster than the average loan rate. As a result, the real rate for the first time in three years fell to 4%, which was supposed to make bank lending more attractive to the real sector.
Having a large reserve in the arsenal to reduce the key rate, the Central Bank could contribute to an even greater increase in the attractiveness of loans. But economic growth issues are less important for the Central Bank than inflation. While the consumer price index does not stabilize below 4%, the Central Bank will not lower its key rate and stimulate a boost in the loan cycle.
Expected and observed inflation
* average over the past six months
At the beginning of the year, inflation exceeded the target level, but, most likely, this is a temporary surge associated with an increase in VAT. In June, the consumer price index grew by only 0.04%, the minimum value for twenty years. For several months, the gap between the observed and expected inflation has been increasing, that is, the population expects price reductions4.
4Expected and observed inflation speaks not only about the corresponding opinion of the population, but also about the expected consumer behavior based on it, which directly affects inflation itself.
Dedollarization continues
Following the instruction of the Central Bank of the Russian Federation, banks are gradually reducing their assets in foreign currency. In the first quarter, a situation arose that there were more foreign currency liabilities than assets, which indicates that banks have much more dollars than opportunities and desires to invest them.
Financial stability of banks strengthens
Last year, for the first time after the crisis, there was an increase in the growth rate of banks' equity, which had fallen steadily before. The total amount of own funds exceeded 10 trillion rub.
The profit of banks as a whole is very high, but does not differ in stability as before the crisis, periodically turning out to be lower than rates in the money market. If you do not take into account the losses of the rehabilitated banks associated with the additional charge of reserves, then for 2017-18 the bank profits were up 1.2 trillion rub.
Financial result of banks
* replenishment of reserves of rehabilitated banks, the largest of which are Otkrytie, Promsvyazbank, Binbank, Trust and AVB
Banking bond market shrinks
Liabilities of Russian banks for more than 60% are formed from customer accounts. The share of debt instruments is very small and continues to decline, almost reaching 2%. This increases the instability of the banking system, since bonds are longer money than deposits and funds in current accounts.
Russian banks generally feel pretty good. The recovery of the sector was successfully completed, own funds and profits are growing. But the main function of banks in the economy - lending to the real sector - has been doing poorly in recent years.
This can be partially explained by the reduction in the number of banks and the monopolization of the sector, especially in the regional aspect, which makes it difficult the access to loans of small enterprises that are not too interesting for financial giants. So are the problems of the real business itself, not planning to develop in conditions of economic uncertainty. But the main problem is the overly cautious behavior of the Central Bank, for which economic growth is not the main priority of its policy.