VTB to Increase Reserves Amid Rising Fuel Prices and Inflation in Russia
VTB's Strategy and Economic Outlook
By Elena Fabrichnaya
Impact of Rising Fuel Prices and Inflation
MOSCOW, July 3 (Reuters) - Russia's second-largest lender VTB plans to boost reserves in the second half, its first deputy CEO told Reuters on Friday, as the bank seeks to protect itself against the inflationary impact of higher domestic fuel prices and possible loan losses.
Russia's central bank said this week that the scope for the further cuts needed to spur the slowing economy was narrowing, meaning borrowers face the prospect of sustained higher interest rates.
It cited inflation risks stemming from rising fuel prices linked to fuel shortages caused by Ukrainian drone attacks on Russian refineries.
Interest Rate Trajectory and Borrower Impact
"In the first quarter and the first half of the year, everyone had been factoring in a more moderate key rate trajectory," First Deputy CEO Dmitry Pyanov said.
"It is now clear that the key rate path will be less favourable, resulting in a higher interest burden for borrowers, the overwhelming majority of whom took out loans with floating interest rates."
As a result of rising costs for borrowers, Pyanov said VTB's cost of risk, the amount a bank sets aside for expected loan losses, would rise to 1.1% of its loan portfolio by the end of the year, compared with 0.9% at the end of the first half.
Central Bank Policy and Future Projections
Key Rate Decisions and Economic Forecasts
A CUT IN JULY BUT THEN UPWARD REVISIONS?
He also said he expected the central bank either to pause or to cut the key rate by another 25 basis points at its next meeting on July 24, and to revise its average key rate forecast once the government announces its 2027 budget deficit targets in the autumn.
"The key rate is more important here than the fuel situation. That's because 2027 will see dramatic changes, with the medium-term key rate forecast set to be revised upward in July and possibly again in the autumn," he said.
VTB's Risk Management and Corporate Clientele
Insulation from Credit Risk
As a bank serving some of Russia's largest corporations, including the indebted railway monopoly Russian Railways, Pyanov said VTB was in a better position to manage the risks than smaller banks.
"In my view, VTB is the best insulated from credit risk. Its loan portfolio is dominated by large corporate clients. Large companies are clearly better able to weather difficult periods than small and medium-sized businesses," Pyanov said.
He added that he expected Russian Railways to make all the necessary payments this year.
VTB's Diversified Assets and International Partnerships
VTB, a former Soviet foreign trade bank, has grown into a vast banking and industrial conglomerate with assets ranging from Russia's largest shipbuilder to some of the country's biggest farms.
The bank, which is under U.S. and European sanctions, handles a large share of Russia's trade with China and is pursuing business opportunities in Iran.
In May it entered into a partnership agreement with Russia's biggest e-commerce company, WB, which has 80 million monthly clients, in the expectation that the deal would give it an advantage over its main rival, Russia's largest lender, Sberbank.
"This effectively puts the retail business in a different league, with a scale comparable to that of Sberbank," Pyanov said.
(Writing by Gleb Bryanski; editing by Barbara Lewis)
