Russia’s second-largest lender, VTB, reported a 15.4% year-on-year increase in net profit for the first quarter of 2025, to RUB141.2bn ($1.70bn), despite a sharp decline in net interest margin caused by elevated interest rates.

The state-controlled bank confirmed its full-year net profit forecast of RUB430bn ($5.16bn). However, its net interest margin (NIM) fell to 0.7%, down from 2.2% in the same period last year.

“A high level of profitability was achieved against the backdrop of continued pressure on net interest margin and the normalisation of risk cost,” said VTB first deputy chief executive officer Dmitry Pyanov on April 19, TASS reports.

The lender’s performance was bolstered by gains in securities trading, particularly during the rally on the Russian stock market in the early months of the year. The Moscow Exchange saw a sharp rise in equity values in January and February before momentum slowed in March as Ukraine ceasefire talks kicked off in Riyadh on February 18.

“Taking into account these likely non-recurring revenues associated with the positive dynamics of the stock market in the first quarter, it is likely that for a long time, until the fourth quarter, we will regard this quarter as the best,” Pyanov said. “That is, the second and third quarters will most likely be worse,” he added.

VTB has faced continued market volatility and macroeconomic uncertainty amid high interest rates and geopolitical tensions. Despite these headwinds, the bank has recorded stable profitability over the past year, supported by increased transaction volumes and capital market activity.

Russian banks’ profit rose 14% in March, after a 26% fall in February, reaching $3.01bn Allocations to reserves in the Russian banking sector rose by RUB 48bn rubles ($591.8mn) in March  the CBR reported.

The total profit of banks since the beginning of the year has reached RUB500bn (chart), which exceeds the figures for the same period in 2024. The main contribution to the profitability of the banking sector was made by large credit institutions, which account for more than 80% of the total result.

Renaissance Capital analysts commented that given persistent challenges from tightening capital adequacy requirements, the prospects for dividend payments for 2024 and 2025 on VTB’s shares remain limited.

At the same time VTB continued to outperform on gains from financial instruments, which contributed RUB253bn ($3.47bn) in revenue and exceeded the entire 2024 figure. 

RenCap analysts note that VTB capitalised on end-2024 positions in equities and OFZs, selling them before market disruptions began. 

However, they caution that this source of income is non-recurring, underpinning their conservative full-year 2025 net profit forecast of RUB351bn ($4.82bn) with a 15% return on equity (RoE), compared to RUB551bn ($7.56bn) in 2024. 

VTB’s capital adequacy remains a concern. VTB’s N20.0 ratio rose by 0.8pp to 9.9% in 1Q25, exceeding slightly the minimum requirement of 9%. 

However, Basel III and countercyclical buffers are set to lift capital requirements by a cumulative 300bp over the next three years, requiring an estimated RUB1.7 trillion ($23.3bn) in additional capital, Renaissance Capital estimates.