Energy plays a crucial role in determining the health of the Russian state’s finances and its overall economic trajectory, as has been abundantly clear since oil prices started to collapse towards the end of 2014. The price of oil directly influences the strength of the currency and the size of the federal government’s tax haul. The word “petrostate” gets thrown around a bit too frequently for my taste (oil’s share in the Russian economy is nowhere near the level of Saudi Arabia or Kuwait), but it’s clear to anyone that trends in the world oil market are of first-order importance.

However, from the standpoint of Russia’s overall economic health, the condition of Sberbank – the state-owned bank that is by an order of magnitude Russia’s largest and most powerful financial institution – is arguably just as important. Credit is the lifeblood of any modern economy, and Sberbank’s role in the Russian credit market is pretty hard to exaggerate.

So how is Sberbank doing? Is it in crisis? Has it adjusted to a “new normal” of slower growth and depressed energy prices?

If you believe the standard media narrative that Russia’s financial system was on the verge of a calamitous, total collapse last year, then Sberbank’s performance doesn’t look so bad at all. Sberbank’s full-year financials for 2015 show that while down about 25% from 2014, net profit still amounted to roughly RUB223bn (around $3.25bn). While a relatively modest sum for a company of Sberbank’s enormous scale, if the initial expectation was “complete and utter catastrophe”, then any net profitability has to be counted as a win.

While it undoubtedly occupies a privileged position in Russia’s current financial system, there is certainly no universal law that says Sberbank must have net profits. Certainly, in recent years, other state-owned lenders haven’t!

But if you compare Sberbank’s 2015 results to the (relatively) halcyon days of 2013, then it looks to be in rather worse shape. Most obviously there has been a substantial deterioration in the bank’s fundamental business of taking money from depositors and lending that money out to others. There are two parts to this story.

First, Sberbank’s financing costs have grown. This has put pressure on its net interest margin, or the difference between the rubles that Sberbank receives from its loans and what it has to pay back to its depositors. This reflects a combination of greater competition among banks to attract depositors (who have become increasingly wary of holding rubles) and a more difficult interbank market, but the basic takeaway is clear: it is now significantly more expensive for Sberbank to fund loans than was the case in the past.

The second part of the story concerns the quality of Sberbank’s loan portfolio. Banks are required to “impair” the loans that they think they will be unable to collect. Because this process is forward looking (eg. Sberbank does not simply count up the loans that aren’t being paid, it has to try and estimate which ones will not be), it is necessarily messy and inexact. 

As the chart above clearly illustrates, these impairment charges have grown progressively larger over the past several years. In 2012, when Russia’s economy was still more-or-less healthy, they had little impact on the bank’s margins because they were quite small (less than 2% of interest income). But by 2015 impairments were large enough to knock the bank’s “actual” interest margin from 5.5% all the way down to 2.9%. That by any standard is a rather negative trend, though these problems shouldn’t be exaggerated. As noted previously, Sberbank remains a profitable business and it is not suffering from any concerns about its liquidity or ultimate viability.

However, at the same time, the bank’s core business is in much weaker shape now than it was in 2012 or 2013: there are a lot more loans that the bank’s leadership reasonably expects to go bad, and funding costs are substantially higher than they were in the past.

In that sense, perhaps, Sberbank seems like a good approximation of the Russian economy as a whole: the situation isn’t nearly as bad as many in the West expected it to be, but there are genuine problems which do not appear closer to any resolution. That’s unlikely to satisfy ideologues on either side of the issue, but it’s what the numbers appear to be telling us.