Sberbank lost more than ₽100 billion from the revaluation of securities due to the collapse of the markets

Formerly Central Bank informedthat the January collapse in the markets cost Russian banks about 200 billion rubles, but called this loss “paper”. In reality, credit institutions may not incur these costs if the markets recover and the value of bonds in portfolios rises, Alexander Danilov, director of the Banking Regulation and Analytics Department of the Central Bank, explained at the time. According to the forecast of the Central Bank, the net profit of credit institutions in January before the revaluation of securities will amount to 207 billion rubles, and taking into account it – 166 billion rubles.

According to the financial statements, in January, the net profit of Sberbank under RAS reached 100.2 billion rubles, an increase of 15.6% year-on-year. Although the size of the negative revaluation is comparable to the bank’s financial result in the first month of the year, its effect on profit was insignificant, follows from the NCR’s calculations. According to the agency, the depreciation of securities by 102.4 billion rubles. reflected in equity, that is, it did not affect net income.

The financial result of Sberbank for January is in line with the average monthly level of 2021, so the negative revaluation did not have a significant negative effect, Yuri Belikov, managing director of the validation department of the Expert RA agency, agrees. He notes that against the background of increased volatility, the largest bank simultaneously earned 38.1 billion rubles from operations with derivative financial instruments (PFIs) and currency revaluation. “We can say that transactions with derivatives in the conditions of increased volatility in exchange rates compensated for the impact of negative revaluation of securities on the balance sheet,” he concludes.

Sberbank, as a systemically important bank, has a significant share of federal loan bonds in its portfolio, so the negative revaluation in January is commensurate with the movement of sovereign securities indices, Roman Rybalkin, deputy director of the Financial Institutions group at S&P, says: “It turns out that the Sberbank bond portfolio has been revalued by about 2%, their total portfolio amounted to about 5 trillion rubles. The corporate bond index during this time fell by the same 2%, and the government bond index fell even more.” Other banks most likely faced a comparable revaluation of their portfolios in January, Rybalkin believes.

Negative revaluation of securities is a general negative factor that will hold back the profits of the entire sector in the coming months, Belikov said. According to him, the fair value of bonds in banks’ portfolios reacts to the general instability of financial markets due to possible sanctions, to the Central Bank’s rate hike cycle, as well as to the situation in the corporate public debt market.

“This will limit net profit this year, but in general will not worsen the stability of credit institutions. In the baseline scenario, the potential negative impact of the revaluation is limited in amount and time,” says Belikov. He recalls that in the event of a deterioration in the situation, the Bank of Russia may use an already tested support measure – to allow credit institutions to temporarily not reflect losses from revaluation in their financial statements. This was already applied in the spring of 2020: against the backdrop of a collapse in the markets, the Central Bank announced that until September 30, banks can evaluate securities on their balance sheets at a cost as of March 1.

“Regulatory easing in terms of reflecting losses from depreciation of securities can be established if new radical external restrictions are introduced, they will significantly affect the cost of OFZ, and this will threaten a material impact on the performance of systemically important banks – large holders of public debt. That is, such decisions are more likely to be made on the basis of fundamental factors, rather than depending on some quantitative criteria, ”concludes the Expert RA analyst.