Russia’s lending on downwards trend in August, profitability under pressure.

By bne IntelliNews September 29, 2013

Lending activity growth in the banking sector in August continued the downwards trend after bouncing slightly in July, the data by the Central Bank of Russia (CBR) shows. Previously, 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 August, real sector lending increased by 12.3% y/y and 1.5% m/m to RUB 21.8tn (USD 686bn). Loans to individuals remained the fastest growing segment increasing by 2.5% m/m and 32.5% y/y to RUB 9.27tn. Retail loans growth rate in 2013 slows down from topping 40% y/y throughout 2012.

Total banking sector loan portfolio (real sector, individual and banking lending) as of end of August 2013 amounted to RUB 38.8tn (up by 14.2% ytd). At the same time overdue loans were RUB 1.38tn (up by 9.9% ytd). In the corporate and retail segment share of overdue loans was 4.38% and 4.44%, respectively. Reserves for losses on bad loans increased by 14.7% ytd to RUB 2.8tn 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. 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 August it declined by 3.6% y/y vs. 17.7% y/y growth for the same month last year.  In August alone aggregate net profit declined by 6.6% y/y and inched by 2.5% m/m to RUB 82bn.

Cash in the sector in August declined by 0.4% m/m, with y/y growth rate of the indicator going down to 7.7% y/y (vs. 13.7% seen in June, 23% in January, and 32% y/y in August 2012). In y/y terms cash in the sector has been on a stable downwards trend since H2/12. Liquidity in the sector remains limited: as of end of August 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 August, client deposits’ growth remained flat at 0.7% m/m, the indicator amounting to RUB 33.45tn. Out of that individual deposits growth remained state at 0.9% m/m growth after 1.1% m/m seen in July. Individual deposits amounted to RUB 15.94tn. In y/y terms, however, client and individual deposits growth slightly decelerated to 21%-22%.

Capital of banks grew by 1.32% m/m as of end of August 2013, the growth rate going down up 0.89% m/m seen for the previous month. In ytd terms capital grew by 9.8% in Jan-Aug, faster than 4.2% ytd seen in Jan-May 2012. As of end of August 2013 total aggregate capital stood at RUB 6.713tn. Total capital adequacy was estimated by the CBR at 13.2%. 

Banking Sector Performance Aug-12     Jan-13     July-13     Aug-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:    45,522.5 25.0 1.0   48,428.7 17.7 -2.2   53,352.7 18.3 1.2    53,876.0 18.4 1.0
Loans to non-banks    19,383.0 22.0 2.1   19,924.9 13.5 -0.2   21,441.7 12.9 2.0    21,767.2 12.3 1.5
Loans to individuals      6,998.8 43.2 3.6     7,795.6 39.6 0.8     9,042.6 33.8 2.8      9,270.5 32.5 2.5
Investment in securities      6,546.8 9.5 -0.6     7,086.9 15.1 0.7     7,385.3 12.1 -0.7      7,472.6 14.1 1.2
TOTAL LIABILITIES   40,059.4 25.7 0.8   42,440.3 17.6 -2.7   47,196.3 18.8 1.2    47,636.4 18.9 0.9
Client Deposits, o/w:    27,619.8 19.9 1.7   29,601.8 16.8 -1.7   33,205.1 22.2 0.7    33,450.5 21.1 0.7
Individual deposits    13,032.1 21.6 1.6   14,069.3 20.9 -1.3   15,796.8 23.1 1.1    15,945.7 -15.7 -30.4
OWN FUNDS, o/w:      5,463.1 19.7 2.0     5,988.4 18.3 1.3     6,156.4 15.0 1.2      6,239.6 14.2 1.4
Profit for the current year         677.8 17.7 14.9          80.3 -21.8 -92.1        571.5 -3.1 16.3         653.6 -3.6 14.4
Monthly profit           87.9 85.4 6.0          80.3 -21.8 -1.8         80.1 -3.4 -20.1          82.1 -6.6 2.5
Source: CBR                        

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