Despite the considerable worsening of the economic and financial crisis in Russia, it seems that Moscow‘s groggy state-owned banks are regaining some of their footing – at least a little.
Eastern Europe’s biggest financial institution, Sberbank, expects a substantial recovery. Alexander Morosov, the bank's deputy chairman and chief financial officer, told Handelsblatt that the signs of improvement are already there: “The situation was much more dramatic at the end of last year.”
Indeed, Sberbank got some positive news this week. Profits surged in the second quarter by 78.4 percent over the first three months of this year. In comparison with the previous year, though, its half-yearly results, at around $1.3 billion, were still 44 percent lower.
The considerable decline in year-over-year profits had to do with the fact that margins from loans had fallen sharply since Russia’s central bank had drastically increased interest rates. They also had to make big increases in provisions for bad debts, according to Mr. Morosov.
But he says the situation is currently improving: “The economic and financial situation of our credit clients today is very much better than a year ago.”
And this despite the China shock, which also negatively affected Russia’s stock exchange prices at the beginning of the week.
The economic and financial situation of our credit clients today is very much better than a year ago. Alexander Morosov, Sberbank CFO
Mr. Morosov is convinced that the China crisis is less of a burden on Russia than other emerging markets: “The big withdrawal of capital now affecting other markets, already took place in Russia last year. That is why the China crisis will not affect Russia so badly.”
Russia has focused increasingly on China, due to Western sanctions following the annexing of the Crimean peninsula, which western countries argued was contrary to international law. But this pivot is certainly not all going according to plan for Russia.
“In no way do Chinese banks with U.S. business fill the void left by Western financial sanctions in Russia,” said an insider who is very familiar with the Russian financial sector.
The market capitalization of the Sberbank is now less than a third of its value three years ago.
Sberbank, like the country‘s second-biggest bank, VTB, the development bank VEB, the agricultural bank and some financial institutions owned by close friends of Russian President, Vladimir Putin, are all on the sanctions list. That means they cannot obtain 30-day financing in the West.
Sberbank and VTB have subsidiaries in Austria, which are also very active in the German day-to-day money market.
Also affecting the banks: The Russian ruble recently came under massive pressure again, due to the fall in the price of oil, after recovering some ground since the end of last year. A report from the Moscow financial service RBK had caused something of a shock wave. It said that the central bank had commissioned a stress test with an assumed exchange rate of 120 rubels for one U.S. dollar (the current exchange rate is about 67 rubles for one dollar).
Despite these reports, Mr. Morosov said he does not expect a crash of the country’s currency.
“I see no reason for such a low ruble exchange rate,” said Mr. Morosov, commenting on the alleged central bank scenario, practically halving the exchange rate.
Imports had sunk drastically, the demand for dollars and euros had also clearly fallen, savings had even increased again, and “anyone wanting to exchange rubles had already done so long ago,” he added.
Mr. Morosov should know: Sberbank recently earned a lot of money in currency trading, compensating for declining returns from bank loans.
The Sberbank CFO is confident that “our profitability will increase again.”
If he's wrong, the bank may have trouble getting any state aid. The sharp decline in the oil price is bad news for Russia: The state budget, from which banks like the VEB have received billions, is in increasingly sharp decline.