Russian banks' main challenge in 2026 will be raising capital, VTB CEO says

By Elena Fabrichnaya and Gleb Bryanski

MOSCOW, Dec 1 (Reuters) - Finding sources of new capital will be the main challenge for Russian banks in 2026 due to the central bank tightening capital requirement rules, the CEO of Russia's second largest lender VTB Andrei Kostin told Reuters.

The Russian banking sector, led by VTB and its rival Sberbank, performed relatively well despite Western sanctions during almost four years of the conflict in Ukraine, with banks posting record profits last year.

However, as economic growth is set to slow to about 1% in 2025 from 4.3% last year, and with interest rates staying high, the banks' loan portfolio is starting to deteriorate while the central bank is tightening regulation.

"We have a number of changes planned by the central bank aimed at strengthening regulation and calculating capital for non-core assets. Further raising of capital will be a challenging task," Kostin said.

The central bank is gradually restoring the international Basel rules which it had softened in 2022. It has also been raising capital requirements for "systemically important" banks such as VTB.

Kostin estimated that in order to meet the central bank's regulatory requirements VTB alone will need 1.7 trillion roubles ($22 billion) over the next five years. He said the Russian equity market in the absence of Western funds was too shallow for raising capital.

Despite the economic downturn, VTB plans to post 500 billion roubles in net profit this year and pay between 25% and 50% of 2025 net profit in dividends. Some critics have lambasted the banks for making hefty profits amid the economic downturn.

"This (VTB profits) provokes a mixed reaction in many, even envy among some in the oil industry, although their situation isn't that bad," Kostin said. He added that the bank's retail business was underperforming due to the loss-making home loans segment.

Kostin said that he expected the central bank to cut the key interest rate by 50 basis points to 16% at the next board meeting in December and to bring it to 12% or 13% by the end of next year.

He said that tax hikes in 2026, in addition to high interest rates, will have a negative impact on economic activity, ultimately leading to lower tax revenues, but the bank did not sense an upcoming crisis.

"So far, the economy is holding up; we do not feel a crisis in the real sector," Kostin said.

($1 = 77.6000 roubles)

(Reporting by Elena Fabrichnaya and Gleb Bryanski; editing by Guy Faulconbridge)