Financial sector risks are down, the Bank of Russia notes

The Russian economy is beginning to recover as it completes its adjustment to the new external environment; risks in the financial sector have largely abated, notes the Bank of Russia in its current issue of the Financial Stability Review available on the regulator’s website.

In particular, improved performance can be observed in the banking sector. Banks see their profits rising, while the credit quality of corporate portfolios remains steady. The current surplus liquidity environment is leading to a reduction in banking sector liquidity risks. High growth paces are still noted in mortgage lending. This trend brings no systemic risks thanks to banks’ adherence to high standards of underwriting and continued improvements in credit portfolio quality.

With the measures implemented by the Bank of Russia in force and considering the revaluation of mortgage loans issued in foreign currency, the credit portfolio’s dollarisation is dwindling in loans to non-financial institutions. Loans in foreign currency are largely down as regards domestically focused corporate borrowers with foreign exchange revenues insufficient to service debt.

Moving forward, provided that the current favourable conditions remain in place, the economy is set on course for recovery, with the financial sector expected to strengthen further in the near future. This situation may potentially lead to increased levels of foreign capital inflows, which would require macroprudential policy measures to ward off potential bubbles in individual markets. At the same time, an escalation in the risks related to a possible oil price slump is not ruled out, nor are risks related to a slowdown in global economic growth, finds the review.