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If a currency reflects a country’s economic health, Russia’s banks should be in intensive care. Yet the country’s largest retail lender, Sberbank, is trumpeting a return on equity that western counterparts can only dream of.
The rouble has dropped 20 per cent against the dollar in the past four months. Russia’s central bank lifted its key interest rate by 3.5 percentage points to 12 per cent last month. That suggests western sanctions are biting.
Or maybe not? Retail banks are often seen as proxies for domestic financial conditions. Sberbank has more than half of the Russian mortgage market and a similar share of lending to smaller companies.
All is well here, if Sberbank’s chief executive Herman Gref can be believed. He reports that the bank’s return on equity year-to-date to the end of August is 25 per cent, compared with 24 per cent through to May.
Sberbank has two factors in its favour. First, last year was tough, fostering flattering comparisons. High loan provisions in 2022, about Rbs224bn ($3.1bn) slashed profits back then. The return on equity was mid-single digits. Second, Sberbank dominates Russian retail and corporate banking.
Bucketloads of salt should be taken with the statements of Russian banks — VTB has also been boasting of its strong performance. Russian business is an arm of an authoritarian state with a penchant for lying. More trivially, Sberbank’s RoE would be lower under western accounting standards.
Nevertheless, Gref’s optimism puts a good face on Russia’s economy. It is credible that Russia’s largest bank should be prospering, given the failure of sanctions to stem oil and gas exports.
Sberbank still operates on the Swift bank messaging system. Its local share price has climbed all year, up 82 per cent. That is far more than the rouble has depreciated. RoE figures were similar before the Ukraine war and coronavirus.
If we are sceptical over Gref’s Russian cheerleading, the same should apply to western claims about the effectiveness of sanctions.
The Lex team is interested in hearing more from readers. Please tell us what you think of the financial strength claimed by Russian banks in the comments section below.