The resilience of Russian banks to sanctions came as a surprise to the initiators of the restrictions. This was announced on Monday, November 27, by President Vladimir Putin at a meeting with the head of VTB Andrei Kostin.

"Our ill-wishers, apparently, did not expect that the Russian banking sector would go through all the difficulties that are created from the outside in this way. They did not take into account the seemingly elementary things that a bank is not just a piggy bank where money lies, but a part of the economy. The banking sector reflects the state of the economy as a whole," Putin stressed.

Kostin agreed with the assessment of the head of state and recalled that in 2022, Western countries staged "absolute lawlessness" in relation to the banking sector of the Russian Federation. In particular, foreign branches and subsidiaries of Russian companies were selected, and now they are being liquidated.

Nevertheless, the business has managed to prepare for various scenarios. As a result, banks have already recovered from the sanctions shock, and in terms of profits, 2023 will be "very successful" for the entire sector, the head of VTB believes.

"Of course, we have suffered serious losses. This year, we have made up for it. Restoring the capital base and reaching a record profit... It is important that we were able to quickly rebuild. Having lost Western markets, we focused, of course, primarily on Russia, but not only on friendly markets," Kostin said.


According to the specialized database Castellum.AI, after the start of the special military operation, the United States, together with the EU and other allies, has already imposed more than 15.2 thousand different restrictions against Moscow. The restrictions affected not only the banking sector, but also the energy industry, trade, aviation, as well as the gold and foreign exchange reserves of the Russian Federation.

In the face of such external pressure, a number of analysts initially predicted a collapse of the Russian economy by 10-25% in 2022. Nevertheless, the real decline was only 2.1% and was even less deep than in the pandemic 2020 (2.7%) and the crisis 2009 (7.8%). Moreover, according to the estimates of the Russian authorities, in 2023 the country's GDP will fully win back last year's losses and add about 3% or even more.

"The overall macroeconomic stability has also helped the banking sector. The anti-crisis measures of the government and the Central Bank allowed credit institutions to avoid a shortage of liquidity and foreign currency. In addition, a number of large financial programs were redirected through banks, and the Central Bank introduced special regulations that softened some standards. Against this background, banks have survived difficult times quite well and are now showing profits," Alexander Abramov, head of the Laboratory for Analysis of Institutions and Financial Markets at the Institute of Applied Economic Research of the Russian Presidential Academy of National Economy and Public Administration, told RT.

Last year, the profits of Russian banks decreased by almost 12 times. So, if in 2021 the figure exceeded 2.4 trillion rubles, then at the end of 2022 the amount amounted to 203 billion, according to the materials of the Central Bank. However, as early as 2023, the value may overcome the pre-crisis level and reach an all-time high, according to experts from the Expert RA rating agency.

"Despite the sanctions pressure, the largest banks were able to retain the bulk of the customer base, including due to a high level of digitalization, which is again becoming one of the important competitive advantages... The profit of the banking sector by the end of 2023 will exceed 3 trillion rubles, while more than 75% of profits will be provided by the top 10 banks, which collectively showed a loss in 2022," the report says.

According to Alexander Abramov, the most painful blow for banks was the bans on interaction with Western organizations, the freezing of some assets, disconnection from the SWIFT international platform, as well as the Visa and Mastercard payment systems. However, the business was able to quickly restructure its work, which mitigated the crisis, Natalia Milchakova, a leading analyst at Freedom Finance Global, told RT.

"The Russian NSPK platform and MIR cards have made it possible to almost completely replace the international payment systems that have left the Russian Federation in the domestic market. At the same time, the de-dollarization of the economy, the transition of Russian exporters and importers to payments and settlements in national currencies with friendly countries compensated systemically important banks for disconnection from SWIFT," Milchakova explained.

With an eye on the rate

Nevertheless, in 2024, the growth rate of the Russian banking sector and industry revenues may decrease, Andrey Kostin believes. According to the head of VTB, this will be due to the current policy of the Central Bank, namely the increase in the key rate of the Central Bank to combat inflation.

"We understand that these are temporary measures. And we expect that as soon as the economy reaches the inflation target, the Central Bank will adjust its policy and make monetary policy less tight, and maybe even softer," Kostin said.

In response to this, Vladimir Putin noted that "you need to be very careful with softness." As the head of state explained earlier, the increase in the key rate reduces lending opportunities and hinders the development of the economy, but if measures are not taken in time and inflation is allowed to grow uncontrollably, it will be even worse for the country in the long run.

"There are no good and very good decisions here, there are difficult decisions, but they need to be made in a timely manner. Both the Central Bank and the government have done this so far, and they have done it very effectively," Putin said.

Traditionally, a change in monetary policy is considered one of the main tools of the Central Bank to control inflation. In the event of a noticeable rise in prices, the regulator raises the rate, and, as a result, loans in the country become more expensive, and the profitability of bank deposits increases. As a result of this tightening of monetary policy, households and businesses are borrowing less frequently, spending less and saving more, overall economic activity is declining, and price pressures are easing.

If inflation slows down, the Central Bank may, on the contrary, return to easing monetary policy and start cutting the rate. This, in turn, should lead to a revival of business and consumer activity.

  • © Komsomolskaya Pravda/Global Look Press

In 2022, with the imposition of sanctions, inflation in Russia began to rise sharply and at one point reached 17.83%, the highest level in the last 20 years. As an anti-crisis measure, the Central Bank more than doubled the key rate at the end of February (from 9.5% to a record 20% per annum), which after a while made it possible to slow down price growth.

In the summer, the inflation rate in the country fell below 15%, and by the end of the year it amounted to 11.9%, after which it continued to decline. As the price pressure eased, the Central Bank began to gradually lower the key rate. In June 2022, the regulator returned it to the pre-sanctions level of 9.5%, in July it dropped it to 8%, and in September it reduced it to 7.5% per annum and kept it at this level for almost ten months.

However, in the summer of 2023, the growth of consumer prices for goods and services in Russia began to accelerate again against the backdrop of a temporary weakening of the ruble and a rush recovery in consumer demand. So, if at the end of May the annual inflation in the country was 2.51%, today the value has reached 7.28%, according to the materials of the Ministry of Economic Development.

To normalize the situation, the Central Bank began to raise the key rate again and has already increased it four times since July, from 7.5% to 15% per annum. Moreover, the leadership of the Central Bank does not rule out the possibility of another increase before the end of 2023, but expects to return to a decline in 2024.

"Our baseline scenario shows that next year we will return inflation to the target of 4% and, accordingly, we will be able to start reducing the rate. But it will take some time for the flywheel of inflation to slow down, for the economy to digest the record amount of credit already created over the past 12 months, the key rate will be high. But I want to assure you that this is the key to normal, stable development in the future," Central Bank Governor Elvira Nabiullina explained earlier.

According to Alexei Kornev, portfolio manager at Alfa Capital Management Company, if inflation begins to slow down in the near future, then by the end of 2024 the Central Bank may reduce the key rate to 10%, and in 2025 to 8-9%. At the same time, experts interviewed by RT also believe that the regulator needs to act cautiously to avoid a new jump in prices.

"Tight monetary policy serves as a cure for inflation for the economy, and for households and businesses from over-indebtedness. Loose monetary policy helps stimulate economic growth, but has its side effects in the form of accelerating inflation and excess demand for cheap loans. Therefore, the Central Bank should use such a tool carefully so as not to harm economic growth and keep inflation below the target of 4%. However, for a successful monetary policy, it is necessary that all ministries and departments responsible for financial stability work in harmony and make optimal decisions for the economy, business and the population," Natalia Milchakova concluded.