Russian banks posted record profits last year, Russia’s Central Bank announced on Wednesday, which also said it was “somewhat surprised” by the situation, according to Reuters and Business Insider, according to Agerpres.

In 2022, profits fell by almost 90% after the West imposed sanctions on Russia’s financial sector following Moscow’s invasion of Ukraine. But last year they grew to 3.3 trillion rubles ($36.96 billion), a record level.

An increase in the net interest margin in the context of increased defense spending contributed to the recovery of the sector in 2023, according to Oleksandr Danilov, director of the Regulatory Department of the Central Bank of Russia.

Even though many Western banks withdrew from Russia after the war began, reducing competition for local banks, this huge increase in profits was also “somewhat of a surprise” to the Central Bank of Moscow, according to Danilov’s comments to the Financial Times.

However, according to the estimates of a Russian official, the profits of Russian banks will decrease to 2,300-2,800 billion rubles this year.

Earlier, the institution warned that high interest rates will affect lending growth.

Mortgage lending in Russia increased by more than a third during the war years

At its last meeting in December, the Central Bank of Russia raised interest rates to 16%, and analysts expect interest rates to remain above 10% this year.

The banks’ mortgage loan portfolio recorded a record growth of 34.5% in 2023, while consumer and business loans grew by 20.1% and 15.7%, respectively.

Last year, mortgage lending showed signs of overheating, Danilov explained, estimating that growth in this segment will slow down to 7-12% this year. And progress in the segment of consumer loans and loans to companies will slow down in 2024.

Data from the Central Bank of Russia show that last year financial institutions reduced lending in foreign currency by $3.1 billion after a reduction of $30.2 billion in 2022.