Lending growth in Russia rebounds in July, profitability under still pressure.

By bne IntelliNews August 26, 2013

Lending activity growth in the banking sector in July increased slightly after declining notably in May and June, the data by the Central Bank of Russia (CBR) shows. Real sector lending growth in May and June 2013 declined to 11.8% y/y vs. 24.5% y/y for the same months of 2012. In July, real sector lending increased by 12.9% y/y and 2% m/m to RUB 21.4tn (USD 643bn). Loans to individuals remained the fastest growing segment increasing by 2.8% m/m and 33.8% y/y to RUB 9.04tn. Retail loans growth rate remained unchanged as compared to previous month, but slowed down from topping 40% y/y throughout 2012.

Total banking sector loan portfolio (real sector, individual and banking lending) as of end of July 2013 amounted to RUB 38.2tn (up by 12.5% ytd). At the same time overdue loans were RUB 1.37tn (up by 9.5% ytd). In the corporate and retail segment share of overdue loans was 4.49% and 4.36%, respectively. Reserves for losses on bad loans increased by 12.9% ytd to RUB 2.76tn or to 7.2% of total loan portfolio.

The lending dynamics are in line with recent reports of rapid expansion of unsecured retail loans and strained real lending. To remind, first deputy head of CBR Alexei Simanovsky previously expected crediting growth of 20% in 2013 (15% corporate crediting growth and 25%-30% for retail segment). Fitch Ratings believes that credit growth of Russian banks is likely to slow down in 2013, due to capital and funding limitations and heavier regulation of retail crediting. Moody's expected crediting growth to decline to less than 15% in 2013 due to the weakening of the capital base. S&P’s expects crediting growth to slow down to 15%-18% in 2013.

Increased transfers to reserves for bad loans and upcoming introduction of the Basel III capital requirements (currently planned as of January 1 2014) are also straining banking sector’s profitability. Since January, aggregate profit for the current year was persistently posting y/y decline. As of end of July it declined by 3.1% y/y vs. 12% y/y growth for the same period of last year.  In July alone aggregate net profit declined by 3.4% y/y and 20% m/m to RUB 80bn.

Cash in the sector in July declined by 1.1% m/m, with y/y growth rate of the indicator going down to 11% y/y (vs. 13.7% seen in June, 23% in January, and 37% y/y in July 2012). In y/y terms cash in the sector has been on a stable downwards trend since H2/12. Monthly decline in cash, together with 9% m/m contraction of accounts with the CBR and 7.5% m/m contraction of the correspondent accounts can be attributed to the tax payment period in June. Liquidity in the sector remains limited: as of end of July 2013 cash stood at RUB 1.23tn, which is lower than December’s RUB 1.55tn and January’s RUB 1.25tn.

On the liability side in July, client deposits’ growth declined to 0.7% m/m from 3.1% m/m in June, the indicator amounting to RUB 32.2tn. Out of that individual deposits declined to 1.1% m/m growth after 2.7% m/m seen in June. Individual deposits amounted to RUB 15.8tn. In y/y terms, however, client and individual deposits growth remained stable at 22%-23%.

Loans from CBR gained 11% m/m to RUB 2.59tn. Banks’ own debt issuance slipped by 2.8% m/m, posting the steepest m/m decline since April 2012.  Own debt issuance amounted to RUB 2.29tn as of end of July 2013.

Capital of banks grew by 0.89% m/m as of end of July 2013, the growth rate going down from 2.86% m/m seen for the previous month. In ytd terms capital grew by 8.4% in Jan-July, faster than 4.2% ytd seen in Jan-May 2012. As of end of July 2013 total aggregate capital stood at RUB 6.385tn. Total capital adequacy was estimated by the CBR at 13.4%. 

Banking Sector Performance July-12     Jan-13     June-13     July-13    
  RUB, bn % y/y % m/m RUB, bn % y/y % m/m RUB, bn % y/y % m/m RUB, bn % y/y % m/m
TOTAL ASSETS, o/w:    45,090.3 26.7 1.9   48,428.7 17.7 -2.2   52,744.4 19.2 2.2    53,352.7 18.3 1.2
Loans to non-banks    18,986.0 23.5 1.0   19,924.9 13.5 -0.2   21,030.2 11.8 1.4    21,441.7 12.9 2.0
Loans to individuals      6,758.7 43.1 2.8     7,795.6 39.6 0.8     8,797.6 33.9 2.4      9,042.6 33.8 2.8
Investment in securities      6,588.3 10.9 0.0     7,086.9 15.1 0.7     7,436.2 12.9 1.7      7,385.3 12.1 -0.7
TOTAL LIABILITIES   39,734.7 28.0 1.9   42,440.3 17.6 -2.7   46,658.2 19.6 2.4    47,196.3 18.8 1.2
Client Deposits, o/w:    27,167.8 21.1 0.8   29,601.8 16.8 -1.7   32,988.1 22.4 3.1    33,205.1 22.2 0.7
Individual deposits    12,830.6 20.8 0.0   14,069.3 20.9 -1.3   15,632.0 21.8 2.7    15,796.8 23.1 1.1
OWN FUNDS, o/w:      5,355.6 17.8 1.8     5,988.4 18.3 1.3     6,086.2 15.7 1.0      6,156.4 15.0 1.2
Profit for the current year         589.9 11.6 16.4          80.3 -21.8 -92.1        491.4 -3.1 25.6         571.5 -3.1 16.3
Monthly profit           82.9 -1.7 -8.5          80.3 -21.8 -1.8        100.2 10.6 48.2          80.1 -3.4 -20.1
Source: CBR                        

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