Russian banks record profits

Bloomberg News – Nov 15, 2023

Key sectors of Russia’s economy are adapting and in some cases completely rebounding from unprecedented international sanctions imposed over the war in Ukraine.

Russia’s economic growth and surging consumer demand, boosted by ample government spending, have allowed businesses as diverse as banks, car manufacturers and airlines to find ways to cope and, in some cases thrive, despite US and European restrictions aimed at tanking the economy in retaliation for the war.

Annual growth accelerated to 5.5% in the third quarter from 4.9% in the previous one, the Federal Statistics Service reported late Wednesday. The result, the fastest pace of growth in more than a decade aside from a spike when Russia exited Covid lockdowns, exceeded the expectations of all economists surveyed by Bloomberg.

The rebound illustrates the limits of the sanctions that US President Joe Biden said were designed to cut Russia’s economy in half and turn the ruble into “rubble” as punishment for the February 2022 invasion of Ukraine. President Vladimir Putin has sought to boost ties with countries such as China and India as the European Union slashed trade links with Russia, including imports of oil and gas, in repeated rounds of sanctions.

The ruble hit record lows immediately after the war began, but soon rebounded. The government last month reimposed some currency controls after the ruble slumped again to 100 per dollar, prompting a turnaround that’s made it the best performer among emerging markets in the past month.

To be sure, though Russia has escaped economic collapse so far, the government is draining its resources to maintain state spending, while there’s been an exodus of foreign investors and domestic businesses find it increasingly difficult to keep up with technological change amid international isolation.

Russia’s banking sector offers one of the starkest examples of where the economy has overcome the hit from sanctions. The largest Russian bank, state-owned Sberbank PJSC, which alongside all major players in the country’s market was designated by the US and the EU and cut off from the SWIFT international payments system, is poised to reap a record ruble profit this year.

“Most likely, this year will indeed be the most successful in history for us,” said Chief Executive Officer Herman Gref, who’s sanctioned by the US, the EU and the UK.

Sberbank isn’t unique in that. The banking sector’s total profit for the first nine months of the year has already exceeded the previous annual record from before the war, in 2021. After falling to almost nothing in the first year of the invasion, bank profits may reach more than 3 trillion rubles ($33 billion) in 2023, said Valery Piven, managing director of the Russian rating agency ACRA.

That’s three times higher than the central bank initially expected this year, driven by a credit boom, the weakening ruble and low provisions. The regulator said Wednesday it won’t extend beyond the end of the year a series of support measures for banks because lenders are sufficiently stable and profitable.

According to ACRA, next year also is expected to be “quite successful” for lenders.

Economic Rebound

After two subsequent quarters of gains, Russia’s economy has almost returned to levels seen before the war, all but reversing the blow from sanctions.

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