Russia economy meltdown as bank profits ‘collapse’ amid market chaos | World | News

Russia’s financial sector is grappling with significant challenges as bank profits plummeted in August, signalling potential economic instability. According to data highlighted by Kyrylo Shevchenko, a prominent Ukrainian banker, Russian banks’ collective profits fell to $2.4 billion (£1.79 billion) in August, down from $4.7 billion (£1.71 billion) in July, a staggering 49% decline.

Shevchenko noted that the corporate sector, particularly where floating-rate loans dominate, has been hardest hit by weaker margins. He tweeted: “The credit market is cooling, reserves are rising, and the era of easy wartime profits is fading. Despite surviving sanctions and high rates so far, the financial sector cannot remain immune to war and isolation forever.”

The downturn is attributed to several factors, including rising loan defaults and increased loan-loss provisions, particularly in the corporate sector.

Analysts from S&P Global Market Intelligence have warned of increasing near-term risks to Russian banks’ capital due to ongoing loan quality deterioration.

They said that cautious macroprudential policies are likely to persist as banks face challenges in maintaining capital adequacy amid rising credit risks.

Margins in the corporate lending sector have been squeezed, and the cooling credit environment is forcing banks to reassess risk exposure.

In particular, floating-rate loans, common in the corporate market, are proving more sensitive to interest rate shifts and economic instability.

The combination of weaker margins and increased provisions for potential defaults has contributed to the sharp decline in profits, highlighting the vulnerability of Russia’s banking sector.

Beyond the banks themselves, the downturn in profitability could have broader economic implications. The Russian government’s fiscal position remains under pressure, with the National Welfare Fund’s liquid assets declining significantly since 2022.

Analysts from the Bank of Finland Institute for Economies in Transition have noted that declining profitability of exports, such as grain and coal, and weakening domestic demand are contributing to the economic slowdown.

They caution that sustained weakness in the banking sector could slow corporate lending, dampen investment, and exacerbate economic contraction.