Banks are in the black: they earned a trillion despite the risks
The Russian banking sector is doing well even in the face of a slowing economy, according to an analytical review by the Bank of Russia for the second quarter of 2025. Overall, the picture looks complicated and ambiguous. On the one hand, there is steady growth in profits and capital, and on the other, structural risks are gradually accumulating, especially in retail and corporate lending. The deterioration in the quality of loan portfolios is noteworthy. Details about the situation in the financial sector through the eyes of the regulator can be found in the Izvestia article.
Overripe loans
According to the results of the second quarter of 2025, the net profit of the sector amounted to 1 trillion rubles, which is 29% higher than the result of the previous quarter (0.7 trillion rubles). The annual return on equity (ROE) increased to 19.9%. This growth was driven not so much by core business as by volatile revenues: a reduction in losses from currency revaluation by 218 billion rubles and the receipt of dividends from subsidiaries of financial companies.
Core earnings, although up 13%, continue to be pressured by operating costs (up 13% due to marketing and personnel costs) and the cost of risk. Due to high interest rates, banks demonstrate high margins (net interest margin has increased to 4.5%), but its maintenance in the future depends on the dynamics of the key interest rate and the ability of lenders to manage risks.
One of the unpleasant signals in the review was the deterioration in the quality of unsecured consumer loans (NPS). The volume of non-performing loans in the segment increased by 1.3 percentage points over the quarter and reached 12.1% as of July 1, 2025. The reason was the "maturation" of risky loans issued in 2023 and early 2024. During the period of high demand, banks actively lent to new borrowers without a credit history and with a low debt burden, the risks of which were initially underestimated.
However, the new issues are much better now. The share of loans with a high debt burden (PD 80+) fell to ~10% against ~20% in 2023. This is due to the strict macroprudential policy of the Bank of Russia, which imposed restrictions on the issuance of the riskiest loans. However, the "old" portfolio continues to generate losses, overriding the positive effect of the new standards.
Corporate risks are growing
Banks are still maintaining high coverage of non-performing loans with reserves (90%), which restrains the immediate negative impact on capital. Nevertheless, the Bank of Russia was forced to raise its annual forecast for the cost of risk in retail to 2.8–3.2%, recognizing that the problem will put pressure on the profitability of the sector at least until the end of the year.
There are also risks in the segment of lending to legal entities. The volume of non-performing corporate loans increased by 7.6% (adjusted for currency revaluation) and reached 9.1 trillion rubles, which is 10.4% of the total portfolio. The main increase in problem debt was accounted for by companies from the real estate, metallurgy and coal industries. The deterioration of their financial situation against the background of high interest rates and foreign economic challenges forced banks to carry out large-scale risky restructurings and add reserves. The cost of risk on the corporate portfolio jumped sharply to 1.1% per annum after 0.6% in the first quarter.
It is important to note that the deterioration is not yet systemic. Most companies continue to service their debts regularly, and borrowers with long-standing difficulties have concentrated their problems. The coverage of problem loans with reserves and high-quality collateral remains at an acceptable level (~60%). However, the trend is alarming, and the Bank of Russia expects that banks will have to continue building reserves for these weak borrowers.
Government stocks are slowly declining
Among other key trends, it is worth noting the growth of mortgages, which is still provided almost exclusively by government programs, mainly Family mortgages. The mortgage market is stagnating due to high interest rates (18.7% in June). The share of problem loans increased slightly to 1.4%.
Household funds are growing at a record pace (+4.5% per quarter), which was facilitated by the indexation of pensions and social benefits. On the contrary, companies' funds are declining (-0.4%) due to dividend payments and lower export earnings. Capital adequacy ratio (N1.0) increased to 13.4%. The growth was driven by profits, a positive revaluation of securities and the attraction of subordinated loans from the NWF.
In addition, a gradual reduction in the amount of public funds in credit institutions should be highlighted. In the second quarter, their volume decreased by 6%, to 10.943 trillion rubles. This money allows you to close budget deficits over a long period, without resorting to borrowing, devaluation and tax increases. Although these funds are decreasing, they remain quite significant.
In general, despite the good quarterly results, Russian banks will have to exercise some caution in the second half of 2025. Their resilience will be tested by their ability to manage credit risks in a "sick" retail portfolio and respond to the first signs of stress among corporate borrowers.
According to Igor Dodonov, an analyst at Finam Financial Group, the deterioration in the quality of loan portfolios of domestic banks continued in July, although at a slower pace than in previous months.
— I believe that against the background of the weakening economic situation in the country, still high interest rates and the indebtedness of the population, this trend will continue in the second half of the year. At the same time, the Central Bank notes that the overdue debt is sufficiently covered by reserves, in addition, the capital reserve in the sector (up to standards) is about 7 trillion rubles. We believe that the risks to the stability of the banking system are not very high right now.
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