Russian banking sector braces for £6.3 billion profit dip amid exits

The Russian rating agency Expert RA predicts that this year 15 banks will depart from the country. Moreover, the whole banking sector's profits are expected to decline by approximately £6.3 billion. The departure of banks from Russia is attributed to either the voluntary surrender of their license or revocation.

"Kommersant" states that the banking sector's profits in 2024 are anticipated to drop from a record £41.2 billion to £35.1 billion. However, according to Elvira Nabiullina, the head of Russia's central bank, profits could fall even further to £28.8 billion.

The anticipated decline in profits is linked to stricter regulations, alterations in the provision of mortgage loan subsidies, and the potential imposition of loan limits by the Central Bank, as reported by Russian media. The value of mortgage loans this year is expected to decrease by 10-20% from £97.5 billion reported last year.

At the start of the year, Russia hosted 324 banks and 37 non-bank financial institutions. February marked the commencement of the Central Bank revoking banking licenses for the first time in eighteen months.

In February, marking the first instance in a year and a half, the Central Bank embarked on withdrawing banking licenses. Qiwi Bank, an electronic banking entity, was the first to lose its license, followed by Hephaestus Bank. Both institutions were found to be non-compliant with anti-money laundering laws among other regulatory breaches.

Ksenia Yakushkina, a director at the bank ratings agency, shared with "Kommersant" that half of the banks are exiting the market due to license revocations. In other instances, departures are due to: the surrendering of licenses, planned reorganizations, and mergers and acquisitions (M&A).

Concurrently, the share of profits owned by the top 10 largest banks in the entire sector is expected to rise from 72.7% in 2023 to 75% in 2024, with the largest banks projected to earn £26.3 billion, as forecasted by the Expert RA agency. This surge is attributed to reduced financing expenditures and the technological superiority possessed by the biggest banks. Meanwhile, the profits of medium-sized banks are projected to decline by nearly 29%.