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Overview

The evolution of the pandemic remains a key factor of uncertainty for the Russian and global economy. At the same time, inflation is on an upward trend in a large number of countries. The main risk is linked to the possibility of persistent elevated inflationary pressure for a longer period. Accelerated rate hikes by major central banks may entail a sharp tightening of global financial conditions.

According to the Bank of Russia estimates, the Russian financial system is sufficiently stable and capable to perform its functions even if the situation deteriorates. The key buffers including substantial amount of international reserves, low public debt, significant capital buffers and high banking sector profit help to withstand potential external and internal shocks.

Meanwhile, the Bank of Russia identifies the following key vulnerabilities of the Russian financial sector in the short- and medium-term.

Corporate lending amid economic recovery and the end of regulatory easing

The economic recovery and the desire of companies to raise financing before interest rate hikes have led to an increase in corporate lending, leasing and factoring operations. The quality of banks’ corporate loan portfolio has improved amid economic recovery. The level of bad debt of leasing companies has increased somewhat due to high concentration of portfolios in the sectors affected by the COVID-19 pandemic (air and railway transportation).

Assessment of the financial sector resilience

In the reporting period, the resilience of banks increased due to the growth of profits as a result of borrowers’ credit quality improvement. Lower provisioning costs were the main driver of profit growth. The improved solvency of borrowers allowed banks to exit the temporary regulatory relaxations that were introduced by the Bank of Russia at the beginning of the pandemic. To support banks in the process of exiting regulatory relaxations, the Bank of Russia released the macroprudential buffer in the amount of 124 billion rubles.

Tightening of the macroprudential policy in relation to consumer and mortgage lending has enabled to increase banks’ macroprudential buffer to 711 billion rubles in comparison to 628 billion rubles at the beginning of the pandemic.

The resilience of non-bank financial institutions remains at an acceptable level. At the same time, amid accelerated growth of assets marginality of their business has slightly decreased. The Bank of Russia is gradually introducing a risk-based approach to the regulation of insurers as well as strengthening the regulation of brokers, given their growing importance for the financial market.

Department responsible for publication: Financial Stability Department
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Last updated on: 29.11.2021