Russian banks hit record profits

The Russian banking sector's profits in the first half of this year exceeded 750 billion rubles, which is a historic high for the Russian Federation, according to the Bank of Russia's information and analytical material for the second quarter of 2017.

According to the regulator, in the first half of this year, the banks' expenses to form reserves for possible losses amounted to less than 300 billion rubles, almost a quarter less than in the same period last year.

It ensured a sustained growth in profits, which exceeded 750 billion rubles in the first half of the year, reaching a historic high for the Russian banking sector.

In addition, the Central Bank said that the recovery of domestic demand and the growth of real wages helped borrowers to better service their liabilities to credit institutions.

The head of the Regional Banking Association, the chairman of the Duma Committee on Economic Policy, Innovation and Entrepreneurship Development, Anatoly Aksakov, speaking with a correspondent of Vestnik Kavkaza, noted that the improvement of the quality of banking portfolios played a key role in achieving this record. "The previously formed reserves are dissolved, therefore, the profit grows. The second reason is the increase in incomes from lending operations. Commission income has also started to grow due to the growth in the volume of operations. All of this provided this profit," he said.

Anatoly Aksakov drew attention to the fact that profit is the main source of the capitalization of banks. "In this regard, it is necessary to expect the growth of capitalization, and therefore, increases in revenue from taxes, including to regional budgets. In addition to the accelerated growth of capitalization and filling of budgets, this record will also attract investors' interest in the Russian banking sector, as the margin grows and this business becomes interesting," the chairman of the Duma Committee on Economic Policy, Innovation and Entrepreneurship Development stressed.

The director of the Institute of International Economics at the Russian Academy of Sciences, Ruslan Grinberg, in turn, expressed the opinion that this record is artificial. "Low deposits, high interest rates on loans, I do not see anything good in this. This growth is not related either to production or to the growth of people's well-being. People go into debt to cover their old debts. Besides, now there is monopolization of the banking sector. There are only large banks left. So this record does not reflect either the development of the economy or the quality of banking services," the expert said.

According to him, growth was achieved at the expense of the population, as economic activity is practically zero. "If we talk about loans, they are mostly consumer and are not related to investments," Ruslan Grinberg concluded.

Professor of the RANEPA faculty of Finance, Money Circulation and Credit, Yuri Yudenkov, in turn, recalled two factors, which would allow the banking sector to achieve record growth. "First, the liquidation of more than 300 banks has led to the fact that the remaining banks have poached customers from them and began to make profit without any costs of attracting, advertising, etc. The second is the gap between rates. Now banks issue loans at a very high rate. They use an exclusive monopoly position and the inability of people to get money not from the banking system. And since now the banks are monopolies in the market for transferring funds and so on, they take a huge commission," the economist said.

In addition, he noted that this record will have negative consequences. "The withdrawal of capital will increase and I'm not seeing much good here. Record profits in a stagnant economy are nonsense. Banks that are typical intermediaries profit from the disasters of the state and the people. In addition, the state is now helping banks that are allegedly in the crisis conditions. Last year the record was achieved due to the fact that reserves were transferred to profit, but this year the situation is completely different. Intermediaries  should not earn more than the subjects they serve. It means that something is not normal in the economy," Yudenkov summed up.