31 Mar 2022 16:15

Sberbank, VTB estimate potential losses from state programs at nearly 600 bln rubles - source

MOSCOW. April 1 (Interfax) - Sberbank and VTB have estimated their potential losses from participating in state support measures for the economy that have been adopted or are about to be adopted in response to Western sanctions.

The aggregate losses of the country's largest banks, which are themselves subject to severe restrictions, could amount to almost 600 billion rubles, Sberbank chief Herman Gref and VTB head Andrei Kostin estimated in a letter written to Russian Prime Minister Mikhail Mishustin in the middle of March that has been seen by Interfax.

The bankers said state support measures should be of a market nature. At the same time, a number of decisions adopted and currently being discussed do not take these understandings into account, causing significant financial damage to the banking sector, which will incur heavy losses as it is, they warn.

The letter states that, according to the Bank of Russia, the banking system's losses in 2022 will be between 3.5 trillion and 5.8 trillion rubles, excluding a negative revaluation of securities in the amount of about 2 trillion rubles. The banking sector's income has more than halved in the space of just two weeks since February 24, not including losses on credit risk and from the freezing and reduction of the value of assets, the bankers wrote.

The Central Bank did not respond to an Interfax request about the relevance of its estimates in the letter. Publicly, the regulator has not given any forecasts of banking sector's financial indicators in 2022 since the military operation in Ukraine began and sanctions were imposed that fundamentally changed the economic conditions, as well as the sector's financial results for February.

Sberbank and VTB have also estimated potential losses in 2022 resulting from state support measures that have been adopted or are about to be adopted.

Participation in the "credit holidays" program for small and medium businesses and individuals, which allows for the payment of the principal debt and interest due in the next six months at the end of the loan term is expected to generate about 90 billion rubles in losses for Sberbank and about 14 billion rubles for VTB.

The Agriculture Ministry's change to the amount of subsidies for current investment loans to 50% of the key interest rate for the period from March 15 to September 15, 2022 makes participation in the program lossmaking for the banks. Sberbank's and VTB's losses will total about 16 billion rubles and 15 billion rubles per year, respectively.

There are currently discussions about a program to support large companies and small and medium businesses by restructuring loans with floating rates into ones with fixed rates. For the small and medium business portfolio, it is proposed that ruble loans pegged to the key rate be restructured for a grace period of nine months. The interest burden on borrowers will decrease, but banks will incur losses, only a portion of which will be compensated. For large companies with floating rates, it is proposed that a fixed rate be set with the following approach: 12.5% for the first month, 13.5% for the second, 16.5% for the third and then a return to a commercial rate. With the discussed parameters, this program could generate about 127 billion rubles in losses for Sberbank and about 73 billion rubles for VTB. If the Central Bank's key rate is raised further, the losses will increase.

The ban on returning aircraft to western leasing companies so they can continue to operate in Russia with re-registration in the Russian registry will be no less painful for the state banks. The operation and servicing of these aircraft in Russia is prohibited by the European authorities and will be carried out in violation of international standards, which will reduce the residual value of the aircraft from 50% to 17% of the original value. Losses will total about 92 billion rubles for Sberbank and about 110 billion rubles for VTB.

Airlines' noncompliance with orders to return aircraft has led to claims against Russian banks on standby letters of credit that guaranteed the fulfilment of airlines' obligations to foreign leasing companies. Furthermore, there is discussion of prohibiting banks from making counterclaims and collecting funds paid on letters of credit from airlines. If airlines do not repay debt on these letters of credit, losses will total about 54 billion rubles for Sberbank and 5 billion rubles for VTB.

Thus, overall potential losses could total about 379 billion rubles for Sberbank and about 217 billion rubles for VTB.

The heads of the two banks said that decisions related to state support measures and the participation of the banking sector should be based on market principles and be made after joint discussion and the elaboration of a mutually acceptable solution. As a priority, they proposed discussing and making a decision on the program to support large business and small and medium enterprises by restructuring the loan portfolio with floating interest rates.

Sberbank and VTB refrained from commenting on the letter.

Russian banks saw net profits grow 47% to a record 2.4 trillion rubles in 2021, and before the imposition of sanctions the Central Bank forecast that the sector's profits would also exceed 2 trillion rubles in 2022.

Sberbank, which closed last year with a record profit of 1.25 trillion rubles, has not made forecasts for this year. VTB, which earned an IFRS profit of 327.4 billion rubles in 2021 and had targeted 310 billion rubles for this year in its strategy, also did not disclose profit disclose profit goals for 2022, citing financial market volatility.