The most financially successful year in the history of Tatarstan — RealnoeVremya.com
Earlier last January, Russian analysts confidently made optimistic forecasts for the development of the banking market summarizing the first year of the coronavirus pandemic. Tatarstan, with its not so large banking sector, did not stand out from the general trends in the country. The columnist of Realnoe Vremya, an economist with a long banking experience, Artur Safiulin, offers to consider what expectations of market experts have come true, what has not and why.
State of the sector and outlook for early 2021
Tatarstan is the most developed market for financial institutions in the Volga region — 13 banks have their headquarters in our republic. This is 30% of the total number of registered banks in the Volga Federal District in general.
The crisis of 2020 was different for the country’s banking system, including for Tatarstan, than in 2008 and 2014. The contrast between 2021 and 2014-2015 was particularly marked when the banking sphere, insurance fell sharply, interest rates as well as deposits suddenly increased from 10-12% to 20%. As a result, many banks did not survive this crisis, they did not resist the loading and the outflow of depositors’ money.
In 2020, it became possible to avoid license revocation, some banks even showed portfolio growth at the end of the year. This has become possible in part thanks to the State support measures taken via the banks for the population and businesses, which constitute additional liquidity for financial institutions, an essential component of banking activity. Thus, the profit of the sector decreased insignificantly, although the worst was expected in 2020. If the total decline in profit in all sectors of the country’s economy was around 40% in 2020, the decline in the banking sphere was only 6.3% compared to 2019.
The key rose throughout 2020, followed by lending rates. During the pandemic, the Central Bank stimulated the economy strictly according to the economics textbook. Thanks to the lessons of previous crises, sufficient reserves have been created, mechanisms for risk insurance and verification of borrowers have improved, loans granted have been extended. All these measures have saved the stability of the banking sphere.
The assets of banks in 2020 increased, but this happened mainly due to currency revaluation (the ruble fell by 20%) and investments in bank securities. While liabilities (corporate assets in accounts, deposits of natural persons) have increased by 60%. This is not a surprise because both legal entities and individuals have chosen the tactic of savings, accumulation and anticipation in a context of economic uncertainty. The amount of money in accounts and deposits in Tatarstan amounted to 651 billion rubles at the beginning of February 2021. This is 5.1% more than in 2020. Ruble savings held 85% of all l attracted money, that is 556 billion rubles. Over the year, the sum increased by 4.9%. Foreign currency deposits increased by 6.5% and reached 95 billion rubles (the equivalent).
There was a sudden increase in mortgage lending, thanks to state support programs. Due to historically low mortgage rates, programs to refinance previously contracted mortgages have been in high demand. One in four mortgage loans was granted under the refinancing program. It is expected that in 2021, refinancing will continue and competition between banks for customers of this product will increase. The next extension of the mortgage program with state support at 6.5% has been questioned. At first, Tatarstan was not on the list of 24 regions where the program was to be extended in 2020.
In case of late payment, personal loan repayment arrears increased insignificantly in 2020. Legal entities did not show significant growth in late payments. Only 57 of the 365 banks operating in the country as a whole had more than 20% overdue loans in their portfolio.
Generally speaking, experts expect the pace of corporate lending to slow down in 2021 due to strong competition with bond markets (bonds, etc.) and pent-up effects of lower loan quality and the need to create additional loan reserves. A slowdown was also expected in mortgage lending, partly due to the expected tightening of monetary policy from the Central Bank, which has already started to talk about inflation rising out of reach.
Growth in consumer and auto loans is expected to increase from 6-7% in 2020 to 12% in 2021.
Due to the low deposit rates for natural and legal persons, it was predicted that banks would have difficulty attracting money. Increased competition with brokers and management companies awaited banks as customers exchanged their money for currencies and financial market instruments. In 2020, the number of residents of Tatarstan who have an individual investment account has doubled. At the Moscow Exchange, residents of Tatarstan had 95,500 accounts. Turnover (purchase and sale of shares and other financial instruments) totaled 57 billion rubles in 2020. In this indicator, Tatarstan was fifth in the country and third in the Volga Federal District.
2021 preliminary results
Banks of Tatarstan showed growth in indicators and income in all areas of activity in general. It can be said with certainty that 2021 has become the most successful for banks in history. The Central Bank predicts that the profit of the country’s banking sector will reach 2.5 trillion rubles this year, 1.5 times more than in the best years. The so-called banking health index was 91.5%, and this is the best result for the past two years. Higher interest income amid rapid loan growth became the main reason for profitability.
The general portfolio of retail investors in particular was 190 billion rubles. The value of their assets traded by brokers increased by 2.8% to 172.3 billion rubles. The portfolio of discretionary accounts increased by 12.5% and was equal to 16.9 billion rubles. The average portfolio of a natural person managed by a broker decreased by 12.3% compared to July and amounted to 322,700 rubles. The
discretionary account portfolio decreased by 8.1%, to 1.5 million rubles. The rise in deposit rates has played its part, not everyone is ready to risk on the stock market and return to the banks.
The amount of money in escrow accounts amounted to 51.3 billion rubles at the beginning of November, growth has been 56.5% since the start of the year. The number of accounts was 13,300 and has increased by 40% since the beginning of the year.
39.1 billion rubles were transferred from escrow accounts to repay developer loans, growing 5.3 times. The number of escrow accounts has increased by 4.5 times since the beginning of the year and amounts to 10,700. The total limit of valid credit agreements with developers amounted to 123.3 billion rubles, increasing twice since the beginning of the year.
Mortgages posted 30.3% growth in 10 months of 2021 and were 137.9 billion rubles in the total amount. The number of mortgage loans increased by 11.1% to reach 54,800 agreements. The total mortgage portfolio at the beginning of November was equal to 338.2 billion rubles, the growth is 24.8%. The share of arrears is 0.4% of the total size of the mortgage portfolio (for comparison, this indicator is 0.6% in general across the country).
The amount of money of natural persons on deposit increased by 7.1% at the beginning of November amounting to 703.4 billion rubles, up 9.3% since the beginning of the year. Foreign currency deposits fell 4.7% to 97 billion rubles (the equivalent). The tactics of saving, hoarding and anticipation in an environment of economic uncertainty continue to work.
The amount of money in the deposit accounts of legal entities was 528.4 billion rubles at the beginning of Novemberthe growth was 39.1% compared to 2020, that of individual traders was 20.6 billion rubles, 13.8% growth, money in the accounts of organizations decreased by 3.8%, to 240.1 billion rubles.
Mortgage momentum in general slowed down. Compared to the same period in 2020, growth was 28-30% at the start and middle of the year and slowed to 18-19% at the end of the year.
Acceleration of retail lending momentum. Compared to the same period in 2020, growth was 16-17% at the start and middle of the year and accelerated to 26-27% at the end of the year.
Acceleration of the credit dynamic for legal entities. Compared to the same period in 2020, growth was -10-12% at the start and middle of the year and started to grow to reach 21-22% by the end of the year.
Massive digitization of financial services
In conclusion, it should be noted that our local banks, which are not large, are under particular pressure from the market. It is particularly difficult for the regional banks which are far from the first 100 Russian banks, which do not belong to financial and industrial groups, which do not have large industrial customers to compete with.
In the future, against a background of high inflation in the country, the real incomes of the population will fall, which will lead to a reduction in the number of good borrowers.
In addition, the Central Bank is already taking steps to cool the consumer loan market — new regulatory requirements will slow the pace at which new loans are made. Current financial market volatility, its influence on currency revaluation and the cost of securities will put pressure on bank earnings.
Due to the low profitability of traditional banking activities and the increased competition for customers compared to fintech companies, financial institutions must seek new sources of income. Big banks are increasing their investments in related areas of the financial sector — insurance and leasing. For example, over the last five years, the share of leasing companies in financing a new fleet of leased cars has increased from 39% to 50%. This is not a surprise, since this field is the most diversified and the most attractive from the point of view of profitability.
In general the large-scale digitization of financial services awaits us. A law on the access of small and medium-sized enterprises to the services of financial platforms (marketplaces) will soon be adopted. Now products for natural persons are offered on market places – deposits, compulsory car insurance, open funds, off-exchange bonds. After the adoption of the law, legal persons and independent traders will be able to use the platforms, credit products and much more will be added. It will be interesting to see the banking business expand in the near future.
The author’s opinion does not necessarily coincide with the position of the editorial board of Realnoe Vremya.