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Reuters
6 days ago
- Business
- Reuters
Breakingviews - Sanctions relief is ineffectual carrot for Putin
LONDON, Aug 13 (Reuters Breakingviews) - Sanctions relief is likely to prove a weak carrot for Vladimir Putin. At Friday's Alaska summit, U.S. President Donald Trump could offer to lift restrictions on Russian banks and companies, in a bid to secure a Ukraine deal. Yet given his Russian counterpart wouldn't gain much without Europe on board, Trump may need weightier threats. On paper, Putin has plenty to gain from an easing of sanctions. The Russian economy has stalled after the U.S. and Europe moved to curb its access to western markets, and its fossil fuel export revenues. The impact of sanctions in 2022 sent the country sharply into recession, energy sales to Europe have collapsed, and some of its banks have been cut off from international payments systems. VTB ( opens new tab, a key domestic lender, has seen its net interest income collapse, opens new tab. Dismal as that sounds, Putin is hanging on. Output over the next three years is expected to be around 1%, per IMF forecasts. That's half the rate in the three years before the pandemic, but hardly a meltdown. One key factor has been Putin's ability to shift exports, especially oil and gas, to other countries. Even as European, opens new tab gas imports have fallen by roughly two-thirds between 2021 and 2024, Russian fossil fuel revenues have been more resilient. In July, daily revenue was 585 million euros, down less than half, opens new tab since the start of 2022. India and China have bought 47% and 38% of crude exports since sanctions started. Moreover, Trump can only offer piecemeal relief. Europe is unlikely to suddenly snap up much more oil and gas, given it aims for zero Russian imports by 2027, opens new tab. And with European Union members like Poland fretting over Kremlin aggression, the bloc will be wary of assisting Putin's military buildup. The EU is less likely to agree to restore Russian banks' access to the SWIFT payments system, which would speed up investment and imports, or to unblock Moscow's frozen central bank assets. Trump's best peace gambit, therefore, is to threaten harsher sanctions. That could mean clamping down on Russia's dark fleet of oil tankers, through which it can evade a price cap, and imposing more tariffs or sanctions on countries that buy Russian fossil fuels. Yet the U.S. president has shown little appetite for such a move. He has only threatened 25% tariffs on India, and his desire to secure a trade deal with China complicates pushback on Beijing's support for Russia. Imposing far-reaching sanctions on those two countries could send oil prices up to $90 per barrel, Oxford Economics reckons, clashing with Trump's desire to protect U.S. consumers. Hence Putin may have little reason to cede much ground on Friday's summit, especially if he thinks the front line is shifting in his favour. If Trump plays a weak hand, the war may drag on even longer. Follow @Unmack1, opens new tab on X
Mint
11-08-2025
- Business
- Mint
Russia's VTB Bank Sees Lending Income Collapse Amid War Pressure
Russia's second largest bank, VTB Bank PJSC, is seeing a sustained deterioration in profits made from lending, feeding concern at the bank over its stability amid the economic pressures from President Vladimir Putin's war on Ukraine. VTB's net interest income slumped 49% to 146.8 billion rubles in the six months to June from a year earlier, according to a July 31 results presentation, the latest decline for its core credit operation. Such a drop is rare among comparable lenders worldwide, and senior managers at the bank are signaling privately that the data don't reflect the true seriousness of the situation, according to people familiar with the matter who requested anonymity discussing private matters. The lending income slump underlines the challenges that Russia's economy is facing as Putin and US President Donald Trump prepare for a summit in Alaska this week in search of a deal to end the war. The White House is increasing pressure on the Kremlin, with the latest moves including a doubling of tariffs on India as a penalty for its purchases of Russian oil. Net interest income is the difference between the interest a bank earns on loans and pays on deposits. At a time when Russia's official benchmark rate soared to a peak of 21%, the decline underscores the challenges facing the bank's loan book. The bank still posted a net profit of 280 billion rubles in the period, according to the results. That was aided by large gains in the trading of financial instruments, the data show, a factor which may not provide reliable returns in the long run. VTB said its net interest income declined because the increase in interest rates from 7.5% to 21% was 'so significant and so prolonged that it impacted NII so materially.' It dismissed as 'fantasy, plain and simple' that senior managers at the bank were privately signaling the data may not reflect the true seriousness of the situation. 'We regularly conduct stress tests and all necessary business analysis, and we are absolutely positive,' a spokesperson said in an emailed response to questions. Bloomberg reported in June that banking officials saw a credible risk of a systemic crisis in the next 12 months as lenders became increasingly concerned about the level of bad debt on their balance sheets. Asked about those fears as the Russian Central Bank cut interest rates to 18% last month, Governor Elvira Nabiullina insisted there was 'no reason to worry.' The Russian government has relied heavily on banks, especially state-owned ones like VTB, to help finance the war effort. Moscow mandated lenders to give preferential loans to enterprises linked to the military-industrial sector, many of which are difficult to account for in public statistics because of restrictions on the publication of data on war-related spending. Massive increases in government spending on the war and measures to support businesses affected by international sanctions stoked spiraling inflation in Russia and prompted the central bank to hike interest rates to a record high 21% to cool the overheating economy. As interest rates rose, banks have seen a spike in the non-payment and restructuring of loans. Nabiullina rejected the risk of a systemic crisis as 'absolutely unfounded' at a financial conference last month, and pointed to capital reserves of 8 trillion rubles as evidence that Russia's banking system is well insulated against shocks. The central bank has also said it could release what's known as a macroprudential capital buffer, allowing banks to absorb losses and operate with temporarily lower capital ratios, if necessary. Nabiullina has acted decisively to recapitalize failing lenders and clean up Russia's banking system in the past. In 2017, the central bank spent at least 1 trillion rubles to rescue three large private banks, Otkritie, Promsvyazbank and B&N Bank, a move it said was necessary to save the financial system. VTB is one of 13 major lenders considered systemically important by the central bank. Some senior VTB managers have privately pointed to the collapse in net interest income to air concerns that their loan book is in worse shape than other headline statistics imply, according to current and former officials and documents seen by Bloomberg. Public data on VTB's non-performing loans show some cause for concern but do not suggest any crisis is imminent. Its non-performing loan ratio stood at 4.1% at the end of June, a percentage point higher than a year earlier, signaling a relatively rapid increase that nonetheless sits lower than previous crisis periods. VTB's official cost of risk, a key indicator of credit quality, rose to 0.8% from 0.6% year-on-year, and for individuals it roughly doubled from 1.2%. Non-payment of loans from individuals was up 32% in the year to date. That all suggests the bank is having difficulties with the repayment of retail loans at a time when mortgage delinquencies in particular are known to be rising. However, the officials have privately noted that when it comes to the corporate portfolio, loan restructurings and the lack of visibility on war-related debt means it is hard to get an accurate picture of the true state of the loan book. They also noted the discrepancy between the falling interest income and its overall net profit figure, which was up 1.2% year-on-year in the six months to the end of June. The half-year filings indicate its profits are coming from other strands like fee and commission income and trades, likely in currency, more volatile income streams than lending. That uncertainty was evidenced in its second-quarter profit for 2025, which dropped 10% year-on-year. A 2022 rule means 'banks cannot go after their assets in insolvent companies and have to continue issuing credit, masking the level of financial distress in the economy,' said Anders Olofsgård of the Stockholm Institute of Transition Economics, a leading research center on Russia's economy. 'It would be quite amazing and hard to believe for a bank's profit to increase if their net interest income has plummeted by that much.' VTB has also been operating with its capital ratios under pressure. In September 2024, Russian media reported that its core capital adequacy ratio fell to 5.31%, close to the regulatory minimum, giving it the lowest ratio of all major banks and prompting analysts to suggest it may need additional capitalization. It has since stabilized although its capital buffers remain historically thin. Bloomberg reported in July that several systemically-important banks were privately discussing how they may need to be bailed out or recapitalized. The people also said the decline in VTB's lending operation appears worse than at some of its major rivals. Sberbank, Russia's largest bank, saw its net interest income rise 18.5% to 1.7 trillion rubles in the first half of 2025 compared to a year earlier, according to its IFRS filings published in July. Sberbank's results show a rise in interest income over the last two years, a markedly better core performance than VTB. In a press release accompanying its first-half report, VTB said its net interest income was 'under pressure.' However it said its non-performing loan figure 'remained low.' It said it was a 'key beneficiary of monetary easing' and upgraded its profit forecast for 2025. With assistance from Tom Metcalf.
Bloomberg
11-08-2025
- Business
- Bloomberg
Russia's VTB Bank Sees Lending Income Collapse Amid War Pressure
Russia 's second largest bank, VTB Bank PJSC, is seeing a sustained deterioration in profits made from lending, feeding concern at the bank over its stability amid the economic pressures from President Vladimir Putin's war on Ukraine. VTB's net interest income slumped 49% to 146.8 billion rubles ($1.9 billion) in the six months to June from a year earlier, according to a July 31 results presentation, the latest decline for its core credit operation.
Reuters
31-07-2025
- Business
- Reuters
Russia's VTB reports drop in quarterly profit, raises full-year outlook
MOSCOW, July 31 (Reuters) - Russia's second-largest lender VTB ( opens new tab on Thursday reported a 10% year-on-year drop in second-quarter net profit to 139.2 billion roubles ($1.72 billion), as high interest rates squeezed the bank's net commission income. VTB raised its full-year profit forecast to 500 billion roubles from 430 billion roubles, noting that the bank has started earning more on commissions for cross-border transactions, in spite of sweeping Western sanctions. VTB's net interest income slumped by 30% year-on-year in the quarter to 94.2 billion roubles, but banks are set to benefit from easing borrowing costs after the central bank slashed its key interest rate by 200 basis points to 18% last week. The prospect of lower rates is allaying concerns about a rise in the share of consumer debt falling overdue. Earlier this month, VTB CFO Dmitry Pyanov told Reuters that every 1% cut in central bank interest rates gives Russia's VTB Bank an extra 20 billion roubles in net profit. Cut off from the SWIFT global financial messaging system as the West imposed sanctions on Russia over the conflict in Ukraine, VTB slumped to a sanctions-induced loss in 2022, but has rebounded since then. The bank said it now expects net fee and commission income in 2025 to increase by around 10%, having previously expected a similar level to 2024. Pyanov put this outlook improvement down to improved cross-border trade and conversion payments. Throughout 2025, VTB has been freeing up capital from its retail loan portfolio and directing this to its corporate and investment business. VTB's Moscow-listed shares rose after the bank reported results, but dropped after VTB announced another share issue in which it expects to raise 80-90 billion roubles. By 0812 GMT, VTB's shares were trading 2.5% lower on the day. ($1 = 80.8000 roubles)
Reuters
24-07-2025
- Business
- Reuters
Russian rate cuts to ease banks' concerns over rising bad debt
MOSCOW, July 24 (Reuters) - After recording record profits thanks to robust demand for loans even at sky-high interest rates, Russian banks are now hoping a cycle of rate cuts will nip concerns about rising overdue consumer debt in the bud. Analysts polled by Reuters expect the Bank of Russia to slash borrowing costs by 200 basis points to 18% when it meets on Friday in what would be its deepest cut since 2022, as an easing cycle after nearly two years of monetary tightening gathers pace. With such high rates, credit risk is currently the main concern among banks, Renaissance Capital economist Andrei Melashchenko told Reuters, something that a mere 1% cut would not fundamentally change. "But if the (easing) cycle towards the end of the year we will see lower spending on reserves by banks," Melashchenko said. "And as the growth of the loan portfolio recovers, the share of problem debt will decrease." Russian banks' combined profits of 1.7 trillion roubles in the first half of this year have enabled them to build up capital reserves as loan servicing has deteriorated with the central bank holding its key rate steady at a more than 20-year high of 21% from October to June. State-owned VTB Bank ( opens new tab told Reuters this month that every 1% interest rate cut gave it an extra 20 billion roubles in profit. CFO Dmitry Pyanov said VTB stands to benefit above all others because its high proportion of loans at floating rates carries greater risks of defaults and debt restructurings. "What can undermine a bank's financial sustainability?" Pyanov said. "It is the default of corporate clients, because problematic retail will hardly cause significant harm." Overdue consumer loans are nevertheless on the rise, even as rates have eased, although Central Bank Governor Elvira Nabiullina has sought to quash rumours of a looming crisis and said all bad debt is provisioned for. A source close to the central bank told Reuters that a rate cut will boost banks' profits and strengthen the sector's capital position. German Gref, CEO of Russia's largest lender Sberbank ( opens new tab drew attention to the growth of overdue consumer loans earlier this month but said everything was covered by reserves. Sberbank is majority-owned by the Russian state and its shareholders, most of whom are in Russia and cut off from Western capital since the imposition of sanctions over the conflict in Ukraine, last month approved a record $10 billion dividend payout. Some of Russia's major lenders slumped to sanctions-induced losses in 2022, but with limited foreign competition and helped by two years of economic growth fuelled by defence spending, Russian banks reported record profits in both 2023 and 2024. Bad consumer debt now accounts for 4.5% of banks' overall retail loan portfolio, the central bank said in a review last week, up from 3.7% in December, since which time consumer deposit rates have been falling. "Russian banks are managing to maintain margins, despite a noticeable increase in provisioning due to the deteriorating quality of the retail portfolio," the central bank said. "We see, indeed, that bad debts are gradually increasing," Melashchenko said. "But for now, we still believe these values are controllable." Analysts also expect any outflow of depositors' funds to the stock market to cause limited harm as the central bank has promised a smooth reduction in rates. As bad debts have grown, the central bank has raised macroprudential limits, forcing banks to increase reserves to cover possible credit risks. Well-capitalised banks can expand their loan portfolios as credit risks decrease, said Melashchenko, while others are reducing lending rates and rebalancing assets towards less capital-intensive ones to build up a capital cushion. The growing accumulation of bad debt is unlikely to bring down any major banks, Olga Naidenova, senior analyst at Sinara Investment Bank, told Reuters. "Even if we look at systemically important banks, I think there is no chance that the state will allow them to default or anything like that," said Naidenova. "They will find a way to support or recapitalise them."
