Yesterday, Deputy Chairman of the CBR Mikhail Sukhov announced preliminary Russian banking sector lending statistics. The corporate portfolio expanded 0.6% MoM and retail 2.5% MoM (down from 2.1% and 3.6% in August), while the YoY growth also decelerated, to 16.9% and 41.6% (from 22.0% and 43.2%), respectively. The share of overdue loans stayed flat in the corporate loan book at 4.9% but edged down to 4.4% from 4.5% in retail.
The moderation in the growth of the corporate portfolio has also been caused by RUB appreciating 4.2%. However, excluding the FX effect the numbers still suggest a deceleration to 1.5% MoM and 18.0% YoY. The FX factor had a minimal effect in retail lending, we think, where the share of FX loans is only 4%.
The September data shows demand for loans moderating and we expect loan growth to decelerate further by YE12 as slower economic growth, expectations of a new deterioration in the backdrop and increased penetration in some parts of the retail segment keep demand for loans muted (compared with the traditional fourth quarter spike in lending activity).
We also see negative developments in the coming quarters. Slower loan growth would have less potential to compensate for the weaker recovery in NIM in 2H12 as the high cost of funding keeps pressure on margins. Although asset quality remains intact, banks need to opt for a more conservative approach, pushing CoR up, which again would weigh on profitability. We expect the first negative surprises during the 3Q12 IFRS reporting season, due to start at the end of November.