Are retail banks resolving deadlock?

 Are retail banks resolving deadlock?

Russian retail banks are recovering from losses, according to their financial statements for the first half of 2016. After writing off troubled loans, which have been issued under old rules, the banks began to form smaller reserves and many have completed their first half with a profit.

Tinkoff Bank net profit increased in comparison to the last year five-fold to 3.3 billion rubles.

Home Credit Bank earned 1.6 billion rubles in six months against the loss of 9.4 billion rubles a year earlier.

Independent financial analysts also note an improvement of the situation: the retail banks have already passed a peak of accumulated problems. Allocations to reserves by retail banks have been greatly reduced in the second quarter, which allowed some banks to earn profits again.

According to experts, the reduction in funding costs is another reason allowing retail banks to profit.

The Russian Standard bank situation is a little worse: its losses in January - June increased from 5.5 billion to 6.8 billion rubles. A bank representative explains this result with a size of reserves. But he assured that now the reserves are being reduced.

OTP Bank's net profit is 2.2 billion rubles against the loss of 2.9 billion rubles a year earlier. The bank earned 1.55 billion rubles in the second quarter. OTP Bank has reduced its allocations to reserves by nearly threefold, up to 4 billion rubles.

However, it is too early to speak about the market returning to pre-crisis times. Retail banks will finish this year with zero profit, which is not bad,  the Vedomosti experts believe.

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, explained that these figures show that the situation in the industry is gradually getting better.

The expert listed several factors contributing to the improvement of the situation. "Firstly, retail lending, it is, in principle, high-margin lending. Secondly, recently banks have had a rather rigid approach to the selection of borrowers, respectively, the quality of consumer loans increased, which helped to improve profitability," the head of the Regional Banking Association said.

According to the expert, the activation of consumer lending has also played its role. "Apparently, loan recipients felt that the macroeconomic situation is changing, and thus confidence is growing," he said.

"On the other hand, banks with surplus liquidity are also beginning to lend more actively, and respectively, receive a certain income," the chairman of the Duma Committee on Economic Policy, Innovation and Entrepreneurship Development added.

He noted that such positive effects are observed not only in the retail banks sphere, but in the sphere of state-owned banks and agencies serving corporate clients. "It is a general trend," Anatoly Aksakov concluded.

An associate professor of Stock Markets and Financial Engineering of RANEPA, Vasiliy Yakimkin, in turn, said that indeed there have been some improvements.

The expert noted that it is especially evident against the background of previous gloomy statements. "But for the most part it is an effect of a low base, and I, unfortunately, do not see any serious progress. However, we reached the "bottom" and it is a good thing, there will be a growth probably. There is a number of sectors in our economy, which are actively providing profit-making opportunities: agriculture, petrochemicals," he said.

"The fact that deposits are growing again also shows that the lowest point is passed and now everything will gradually improve. In other words, people trust banks, businesses also trust banks," an associate professor of Stock Markets and Financial Engineering of RANEPA explained.

According to the expert, we should not relax, because industrial production is still negative. "It also says that risks remain, but in general, it is possible that if banks groped positive sectors of the economy, they will be all right," he said.

Yakimkin noted major banks are now more profitable than of small ones. "Overall, bank profitability is determined by professionalism of the management and senior managers," an associate professor of Stock Markets and Financial Engineering of RANEPA added.

"If you rely solely on proven algorithms for evaluating quality of a borrower, then everything will be alright. But those based on personal preferences can have problems," Vasiliy Yakimkin concluded.