Banking sector’s conservative provisioning policies shape moderate profit growth in January-October 2017

Over nine months of this year, banking sector profit totalled 693 billion rubles. This moderate financial result is in part conditioned on one-off loan loss provisioning on the bad loans of banks undergoing financial rehabilitation within the framework of the new mechanism that uses the resources of the Banking Sector Consolidation Fund. Moreover, this year banks have been making better assessments of the quality of their assets, which is evidenced by the increase in provisions: from the beginning of this year through 1 October, the loss provisioning for loans classified in quality categories IV–V grew from 62.4 to 63.3% in the corporate portfolio and from 86.4 to 87.8% in the retail portfolio.

Importantly, notwithstanding the more conservative assessment of asset quality, banks have preserved their earning capacity. This year, banking sector profit before making provisions increased substantially to 1.5 trillion rubles.

For details of baking sector trends, please refer to the analytical publication ‘Development Dynamics of the Banking Sector of the Russian Federation in October 2017’ on the Bank of Russia’s website.