Russia’s banking sector is back in profit and earned RUB264bn ($4bn) in January, according to Central Bank of Russia (CBR) data released on February 28.

Earnings for the first month of the year came in at RUB264bn versus RUB71bn in January a year earlier and RUB114bn in the same month in 2017, which marked the start of the recovery from the crisis years of 2015-2016.

The January result is also well over double the profits earned in all the months of last year and four times more than the RUB65bn that banks earned in December of last year.

However, some of this impressive performance was due to currency effects: the ruble lost 20% against the dollar in 2018, depressing bank results, but it gained around 5% in January pushing up the results. “In addition, several changes in accounting methodologies came into force that have impacted the sector's financials,” bank analyst Andrew Keeley of Sberbank CIB said in a note.

The number of banks has also continued to fall. The CBR is in the midst of a banking sector clean up that is coming into its end game as the number of banks in Russia fell below 500 in November. This year Russia has started with only 479 banks left as the CBR continues to close smaller banks at the very steady rate of about three a week.

The total loan book was flat m/m in January in nominal terms (+13% y/y), while in FX-adjusted terms loan growth was 1.0% m/m (+10.3% y/y and +10.9% y/y excluding banks whose licenses have been revoked).

Retail loan growth was 1.3% m/m in January (up 23.5% y/y excluding banks whose licenses have been revoked). The rate of retail loan growth accelerated in the second half of last year; as incomes stagnate Russian consumers seem to be borrowing more heavily to maintain their standard of living to the point where the CBR is starting to worry.

Corporate lending decreased 0.6% m/m in nominal terms but was up 0.8% m/m in FX-adjusted terms (for FX-adjusted y/y growth of 5.8%).

Deposits are also growing in aggregate, but not at the same pace as borrowing. Retail deposits were down 2.5% m/m in in January in nominal terms and down 1.4% m/m in FX-adjusted terms last month, for FX-adjusted y/y growth of 6.5% (excluding banks whose licenses have been revoked).

The fall in retail deposits overall both m/m and y/y when set against the rapid growth in retail credits is clearly a worrying trend.

Corporate deposits were down 1.3% m/m in nominal terms but up 0.6% m/m in FX-adjusted terms (for nominal/FX-adjusted y/y growth of 10% and 4%, respectively).

The share of overdue loans in the corporate portfolio increased to 7.8% in January from 6.3% in December. The CBR attributed this sharp increase to changes in accounting methodologies, particularly in different treatment of overdue receivables. The retail overdue ratio increased to 5.4% in January from 5.1% in December.