Ben Aris in St Petersburg -

Has Russia's banking sector passed through the bottom of the current crisis or is there more pain yet to come? That was the main topic of discussion at the recent 20th annual St Petersburg International Banking Conference (SIBC), sponsored by leading commercial bank Promsvyazbank (PSB).

The room was packed with a surprisingly diverse group of delegates. Bankers from more than 80 financial institutions and 17 countries made the trip. Always an interesting regional event, SIBC has become the leading forum for Russia's commercial bankers to meet and swap ideas. While many well-known Russian commercial bankers were in attendance as always, so were delegates from several large European banks with interests in Russia, as well as bankers from the Baltic states and Central Europe, which, if you believe the international press, are about to be invaded by Russia. Instead of manning the barricades they travelled to Russia's northern capital to listen to the discussion and do funding deals.

As bne IntelliNews noted in its July cover issue "Russian state banks are rotten”, the Russian banking sector is under a great deal of pressure at the moment. However, as the article concluded, the Central Bank of Russia (CBR) has been doing a sterling job of keeping the sector going and a financial crisis remains highly unlikely in the foreseeable future. No-one is making a lot of money, but most of the strategically important banks are making profits, albeit small ones.

"Fixed investment is down by 5%; real disposable incomes began to fall for the first time in December; there was a drastic devaluation of the ruble in December by more than 50%; and banking assets are shrinking," said PSB president Artem Konstandyan in his opening remarks to the first session of the conference. "But that is only half the picture. The monetary authorities have stabilised the exchange rate; inflation is capped, although it remains high, and the level has started to come down. The question in front of us is: have the worst times for the banking sector and the economy in general passed, or is there more pain to come?"

While there is some light at the end of the tunnel there is still no simple answer to this question. Certainly Russia's economy has fared a lot better than anyone was expecting at the start of the year. This year's recession will certainly result in negative growth – the consensus is for a 3%-3.5% contraction - but it has already turned out to be a lot milder than anybody had forecast. The mood amongst the delegates remained cautious but their minds have turned from the problems of survival to developing a strategy for future growth.

"In the first and second quarters we saw a stabilisation of the situation but we have not mitigated all the risks. There will be a period of recovery but we have to be mindful of the external and internal risks. We remain vulnerable to external shocks which could lead to another rapid deterioration of the situation," said Alexander Morozov, the chief economist at HSBC in Russia, summing up the mood of the room.

Still, everyone was full of praise for the Central Bank of Russia (CBR), which has skilfully kept the sector liquid and maintained enough confidence in Russia's banks to the point where most of the participating banks said deposits have started to rise again. That is important because with the extremely high interest rates and the lack of access to international capital markets, domestic deposits have become pretty much the only source of funding available other than tapping the central bank for special loans.

The bankers also said that some of their worst fears have not been realised. There was a real possibility that the government would impose capital controls during the worst of the meltdown. " The central bank's actions were expedient and the liberal economic agenda has not been abandoned. It has actually been enhanced by the continuing implementation of deregulation and particularly the support for the small and medium sized enterprises," said Morozov.

Despite the start of an upturn, no-one was shying away from the issues banks still have to deal with. "There are still problems, especially with capitalisation and the deteriorating asset equality in the loan book. On top of that …. [this] has led to the collapse in the demand for loans," said Garegin Tosunyan, president of the Association of Regional Banks of Russia. "2015 is not going to be a good year for banks, compared to the past. But the institution and resources of the Central Bank of Russia is sufficient to support the sector. The fact that household deposits in particular are rising again, testifies to the fact that the population still trusts and needs our banking sector."