Economic Growth & Macroeconomic Environment
- Growth Drivers
- High consumer and investment demand driven by record-low unemployment and increasing disposable income.
- Corporate profits remained near historical highs across most sectors, supported by robust domestic demand and cost management strategies.
- Preferential credit programs continued to boost credit expansion, despite tighter monetary policy.
- Inflation Dynamics
- Inflation stayed elevated due to strong demand, despite significant monetary tightening by the Central Bank of Russia since late 2023.
- External pressures, including sanctions, disrupted foreign trade and currency market operations.
Key Vulnerabilities in the Financial Sector
1. Currency Market Disruptions
- Sanction Impacts
- Sanctions introduced in mid-2024 targeted Russian financial institutions, including halting trading of key foreign currencies like USD and EUR on the Moscow Exchange.
- The Central Bank switched to using OTC market rates to calculate official exchange rates.
- Market Adjustments
- Widening spreads in cash currency markets during initial sanction implementation.
- High yuan liquidity costs surged due to imbalance between currency lending and funding.
- Banks adapted by hedging through derivatives, but temporary liquidity shortages pushed swap rates for yuan above 100% annually.
2. Household Debt Risks
- Consumer Credit
- Credit quality deteriorated slightly due to the inclusion of borrowers with no prior credit history but high willingness to borrow at elevated rates.
- Delinquency rates (loans overdue by 30 days or more) showed a moderate increase.
- Mortgage Market
- Stricter regulations reduced the share of high debt-to-income (DTI) ratio loans, especially for under-construction properties (from 46% in Q3 2023 to 6% in Q3 2024).
- Preferential mortgage programs ended in July 2024, leading to a more balanced monthly growth rate of 1%.
- Regulatory Adjustments
- Macroprudential limits (MPLs) were tightened, targeting unsecured consumer and auto loans. This led to a reduction in high-risk loans.
3. Real Estate Market Trends
- Market Imbalances
- High demand for new builds persisted, while secondary housing markets lagged due to elevated mortgage rates.
- Price gaps between primary and secondary markets reached 54–57% in Q3 2024.
- Financial Resilience of Developers
- Despite declining sales post-subsidy programs, developers maintained stable finances, with an average coverage ratio of 81% for loans backed by escrow accounts.
4. Corporate Lending
- Growth in Corporate Debt
- Corporate loan portfolios grew by 22% year-on-year as of October 2024, driven by large-scale investment projects by major corporations.
- High concentration risks emerged, with six of the largest companies accounting for 68% of banking sector capital exposure.
- Mitigation Strategies
- The Central Bank plans to implement macroprudential add-ons for banks exposed to highly leveraged large corporations.
Interest Rate Risks
- Banking Sector Challenges
- Rising OFZ yields increased unrealized losses on bond portfolios (totaling RUB 518.8 billion for Q2–Q3 2024, equivalent to 29% of bank profits in the same period).
- Banks’ net interest margins (NIM) remained high at 4.4% in Q3, though the cost of short-term funding increased due to liquidity requirements.
- Resilience Measures
- Banks relied heavily on variable-rate loans (60% of corporate lending portfolios) and low-cost deposits, mitigating some interest rate risks.
Global Risks and Trade Implications
- External Environment
- Global economic growth slowed, with developed economies (e.g., EU, Japan) facing reduced industrial activity and China implementing aggressive stimulus measures to stabilize its economy.
- Volatility in global commodity markets, including Brent oil prices dropping below $70 per barrel in September, posed risks to export revenues.
- Russia-Specific Risks
- Vulnerabilities linked to trade dependence on “friendly” nations (e.g., China, India) as their economic systems face external and internal pressures.
- Potential for declining export revenues if commodity prices fall further.
Policy Measures and Outlook
- Monetary and Prudential Actions
- Continued macroprudential tightening for high-risk consumer lending and large corporate exposures.
- Implementation of anti-cyclical buffers for banks starting February 2025 to strengthen capital reserves.
- Sector Resilience
- Banks and non-banking financial institutions (NBFIs) showed resilience, though some sectors (e.g., leasing, insurance) faced rising risks due to tighter monetary conditions.
- Long-Term Goals
- Focus on balancing inflation control with growth sustainability.
- Emphasis on reducing vulnerabilities in real estate, consumer credit, and currency markets through targeted regulatory interventions.
