By Elena Fabrichnaya

ST PETERSBURG, Russia (Reuters) – Every 1% cut in central bank interest rates gives Russia’s VTB Bank an extra 20 billion roubles ($250 million) in net profit, CFO Dmitry Pyanov told Reuters. This benefits the government as the state-owned lender plans to distribute 50% of its profits via dividends, with half going to the state.

Russia’s benchmark interest rate remains extremely high at 20%, discouraging borrowers and hurting banks’ loan books. Although the central bank cut the rate last month from a more than 20-year-high of 21%, there is increasing pressure to lower rates faster. Government officials and business leaders are worried about the risks of recession.

VTB has the highest proportion of loans on floating rates among Russian banks, making it highly sensitive to official rates. Higher rates could increase defaults or debt restructuring, raising capital requirements, whereas lower rates could benefit profits.

“VTB Bank is a main beneficiary of the key rate cut,” Pyanov told Reuters at a financial forum in St Petersburg. “We suffer most of all during a period of its increase and will realize positive interest rate risk when the rate decreases.”

A 1% cut translates to an additional 20 billion roubles in net profit.

In June, President Vladimir Putin directed that VTB’s dividend payments support the United Shipbuilding Corporation, which has state contracts in the defense sector. The state owns over 60% of VTB.

High-interest rates have stunted investment and encouraged holding money in deposits. Corporate and consumer lending is slowing, with the central bank reporting a decline in credit quality, though it states the situation is not critical.

A financial congress survey in St Petersburg identified corporate credit concerns and interest rate risks as significant threats for banks.

Pyanov does not foresee a banking crisis and sees no banks needing bailouts.

DIVIDENDS PLAY KEY ROLE

Dividends from state companies are a crucial revenue source for Russia’s budget, which is running a 1.5% of GDP deficit due to massive investments in defense amidst the Ukraine conflict and lower energy revenues from diminished oil prices.

Shareholders of top lender Sberbank approved a $10 billion dividend payout this week.

VTB surprised the market in April by announcing its first dividend since the conflict in Ukraine started, following a $7.7 billion loss due to sanctions in 2022. The total payout of 275.75 billion roubles comes after record profits in 2024, with expectations of profits exceeding 500 billion roubles despite a decline this year, according to Pyanov.

Pyanov mentioned that VTB aims to maintain a dividend payout of 50% of net profit in the future, managing capital adequacy rules as needed. He highlighted the shift in the stock market since the conflict, noting that retail investors have become a dominant force, which emphasizes the importance of dividends to maintain shareholder value in Russia.

“With such a dominant retail investor, everyone wants dividends,” Pyanov stated.

($1 = 79.0000 roubles)