While the Central Bank pauses in clearing the banking sector, bad assets continue to accumulate on bank balance sheets.
At the end of 2020, the total volume of overdue loans issued by banks increased by 572 billion rubles and reached 4.093 trillion, according to the statistics of the regulator.
During the year of the pandemic, corporate clients did not pay 349 billion rubles on time, and individuals – 168 billion. Another 59 billion rubles were delayed by banks on loans to each other as part of operations in the interbank lending market.
In January 2021, the total delay in the system (for 90 days or more) increased by another 59 billion rubles and reached 4.152 trillion. However, this is only the tip of the iceberg of “bad” assets in the banking system. Central Bank statistics on the quality of the loan portfolio, which is published with a delay of three months, show that the total volume of doubtful, problem and bad loans, assessed on an individual basis, reached 8.8 trillion rubles at the end of November, Raiffeisenbank notes in its sector review. …
Every eighth ruble of loans issued by banks has turned into a problem (13% of 67 trillion rubles). In terms of monetary value, the “toxic” cargo hanging on the balance sheets equaled the liquid part of the National Welfare Fund, exceeded the annual budget of the entire higher education system in the country by 10 times and the volume of state defense orders by 4.5 times.
A little more than a third of bad assets – 3.2 trillion rubles – are concentrated in banks sent for reorganization. The remaining amount – 5.6 trillion rubles – is distributed throughout the system and is not protected by anything by about half.
The volume of reserves formed by banks – 2-3 trillion rubles – is not enough to cover all bad loans, analysts at Raiffeisenbank note, adding that it is difficult for banks to reserve more due to limited capital reserves.
“In addition, most of the bad loans are probably not reflected in the reporting,” the bank’s analysts write. Credit institutions use the concessions introduced by the Central Bank of the Russian Federation at the peak of the crisis in the spring of 2020.
Banks were allowed to disregard the capital maintenance and systemic importance premiums, and not degrade debt service ratings for the affected industries.
Regulatory concessions are valid until July 1, 2021, and the Central Bank sees no reason to postpone their cancellation, said the head of the regulator Elvira Nabiullina on February 18.
The quality of the loan portfolio, that is, the level of overdue debts, as well as the need for additional provisioning after the abolition of the Central Bank’s concessions, will have a decisive impact on the financial results of banks, notes Sergei Zubov, associate professor at the IPEI RANEPA laboratory for structural studies.
Banks will seek to compensate for lost interest income due to possible non-payments on loans by increasing commissions: this process can accelerate with the intensive penetration of banks into non-banking services, further development of the remote service system, promotion of marketplace services for citizens and legal entities, warns Zubov.