Russian banks achieved a record-breaking profit of 3.3 trillion rubles ($36.8 billion) last year, according to an announcement by the country’s central bank on Tuesday. The strong performance came as a surprise to the central bank, with Alexander Danilov, the head of the banking regulation department, expressing his astonishment. This significant increase in profits is in stark contrast to the sector’s 200 billion-ruble profit in 2022, when profits dropped by 90% due to Western sanctions imposed over Russia’s invasion of Ukraine.
Factors Driving the Success of Russia’s Banking Sector
The central bank attributed the robust performance of Russia’s banking sector to the high demand for mortgages and loans for large business acquisitions. Mortgage lending saw a notable increase of nearly 35% compared to the previous year, as Russians rushed to take advantage of state-backed subsidized mortgage rates. The central bank reported that corporate lending also rose by approximately 20%, although it didn’t specify the purpose of these loans. However, it is worth noting that Russian businesses have been acquiring assets from international firms that withdrew from the market.
Implications for Russia’s Economy and Future Outlook
The latest report from the central bank highlights the unexpected resilience of Russia’s economy, which has been impacted by sanctions for almost two years following the conflict in Ukraine. The country has experienced growth primarily driven by significant military and government spending. However, there are concerns about the economy overheating, as noted by Elvira Nabiullina, the country’s top central banker, who raised benchmark interest rates to 16% in December to moderate demand.
Looking ahead, the central bank anticipates a slowdown in both consumer and corporate lending growth next year, which is expected to have an impact on bank profits.
