Russian bank profits surge as provisioning charges fall

Accounting drives the result

Russian banks matched their entire 2025 profit in just nine months of 2026, earning RUB 3.71 trillion ($46.1bn) according to the Central Bank of Russia (CBR) October 26 review. I find the core profit of RUB 448bn in September, which rose 4%, the only part of this result worth noting because one-off or accounting items drove the result for four months in a row. While September net profit of RUB 414bn ($5.1bn) fell 5.9% from August, it remains 12.8% higher than September 2025. Return on equity slipped. This performance relies on banks reducing provisioning charges by RUB 43bn, or 21%, to RUB 165bn. Much of the saving came from banks recognising RUB 35bn less in losses on their investments in non-core businesses. Alexandra Prokopenko from the Carnegie Berlin Centre notes that regulator rules allow banks to delay provisioning against restructured loans, which helps keep profits high. This pattern follows a July where provisioning against corporate loans fell by RUB 103bn, or 77%. Non-core income fell 72% to RUB 40bn.

Growing loan risks

Uncovered problem corporate loans reached RUB 7.2 trillion ($89.4bn) at the start of September, rising from RUB 6.1 trillion the previous month. This volume accounts for about 70% of the capital banks hold above regulatory minimums, a jump from the 60% seen in the previous CBR review. I see a significant danger in the fact that this uncovered RUB 7.2 trillion exceeds the top end of the CBR’s RUB 3.9 trillion to RUB 4.4 trillion profit forecast for the whole of 2026. Total problem corporate loans, covering the worst-graded and risky restructurings, reached RUB 13.3 trillion ($165bn) or 12.9% of the corporate book. The portfolio grew by RUB 0.6 trillion in August because the financial position of certain coal and power companies deteriorated. Overdue corporate debt, where payments have actually been missed, sits at 3.7% of the portfolio as of October 1. The gap of close to RUB 10 trillion comprises debt whose quality the regulator can see deteriorating but against which banks do not have to reserve in full because of current provisioning rules. Coverage of corporate loans by provisions and quality collateral fell to about 45% from about 50%. The CBR called the risks on the uncovered volume "manageable" in June, but stress appears in the market, as 33 Russian bond issuers made first-time technical defaults in 9M26 and Samolet developer bonds dropped 14% on October 30 after VTB floated a rehabilitation of its debt.

Fiscal dependency

Interest income remains partially theoretical because accrued but unpaid interest on corporate loans rose to RUB 4.6 trillion on September 1 from RUB 3.4 trillion earlier this year. This 25% increase outpaces the 7.9% growth in corporate lending, suggesting much of the profit exists only on paper. I observe a cycle of fiscal dominance where the finance ministry relies on banks to buy government debt, as banks bought 77% of the RUB 1.4 trillion in OFZ treasury bonds placed in September. In the same month, banks’ borrowing from the CBR jumped by RUB 1.7 trillion, or 24.7%, to RUB 8.4 trillion. Alexandra Prokopenko notes that the finance ministry cannot borrow without the banks, the banks cannot buy without liquidity, and the regulator cannot withdraw that liquidity without disrupting deficit financing. Companies carry more than RUB 20 trillion ($248bn) of floating-rate bond debt, and each percentage point on the rate costs them about RUB 200bn ($2.5bn) a year. The CBR held its rate at 14% on October 23 and raised its 2026 inflation forecast to 7.1-7.6%. The regulator also lifted its forecast for the average 2027 rate to 12.5-13.5% from 10.5-12.5%. Household funds in banks slipped 0.1% to RUB 68.4 trillion in September. If interest rates stay high, the bill falls on borrowers and the budget through provisions, defaults and recapitalisations of state banks.