Banks make huge profits in 2023 Q2, but rapid growth in retail lending raises concern
In 2023 Q2, banks earned ₽0.8 trillion in profit (and ₽1.7 trillion in 2023 H1) due to the expansion of business volumes, high margins, and currency revaluation. In 2023, the profit is expected to exceed the 2021 level (₽2.4 trillion), despite the increase in the key rate and higher provisions for corporate loans.
The corporate portfolio grew by a significant 3.8% in 2023 Q2 following a 2.8% increase in 2023 Q1, driven by the ongoing recovery of business activity and the substitution of external liabilities.
A very rapid growth in retail lending (mortgage growth accelerated from +4.2% to +7%, and consumer lending sped up from +2.5% to +4.5%) raises concern as it outpaces the growth of household incomes and leads to a higher debt burden for households. To reduce the risks for the financial system and households, the Bank of Russia is compelled to raise risk-weight add-ons for risky loans.
Overall, the situation with funding and liquidity remains quite stable. Household funds increased significantly over the quarter (+5%), while those of companies, on the contrary, slightly decreased (-1.4%), mainly due to the accounts of oil and gas companies.
More details are available in the quarterly analytical review Banking Sector.