Record Profits Amidst Challenges: Russian Banks in 2024

Russian banks achieved record profits in 2024, totaling 4 trillion roubles. High interest rates and solid loan growth contributed, but challenges loom as lending growth slows due to increased borrowing costs. Despite overall profitability, high interest rates pose a challenge to businesses and could lead to corporate bankruptcies.

In 2024, Russian banks celebrated record annual profits reaching 4 trillion roubles, according to the central bank's Thursday report. The financial sector is rebounding, bolstered by high interest rates and strong loan growth, but the higher key rate of 21% also means borrowing costs are soaring, impacting some companies' decisions on seeking financing for development projects.

Excluding subsidiaries' earnings and securities' negative revaluation, profits stand at 3.4 trillion roubles. However, future warnings indicate a potential decline in profits for 2025 due to growing credit risks and pressure on margins. Top banking figures, like Sberbank's German Gref, warn of the challenges posed by elevated interest rates on banks and businesses.

The economic landscape is shaped by government spending on the Ukraine conflict, boosting growth but fueling inflation, necessitating an interest rate hike. Corporate loan growth was tempered by increased non-performing loans. The advisory think tank highlights the risk of corporate bankruptcies as rising interest rates double the share of risky debt-level businesses.

(With inputs from agencies.)