Russia's banks are heading for their biggest profit yet, but the regulator that just raised the profit forecast is also warning about the bad corporate loans sitting behind the upgrade.

The Central Bank of Russia (CBR) lifted its 2026 forecast for banking sector net profit by RUB0.5 trillion ($5.8bn) on September 2, to a range running from RUB3.9 trillion ($45.1bn) to RUB4.4 trillion ($50.9bn), after the sector's net interest margin widened by 0.4 percentage points (pp) quarter-on-quarter (q/q) to 5.5% in 2Q26.

That is the third upgrade of the year. The regulator opened 2026 expecting the sector to earn between RUB3.1 trillion ($35.9bn) and RUB3.6 trillion ($41.6bn), lifted the range twice across the spring and summer to RUB3.4 trillion ($39.3bn) and then to RUB3.9 trillion ($45.1bn). Now the Bank of Russia has  raised it a third time. The top of the new range would beat the RUB3.8 trillion ($43.9bn) the sector earned in 2024, its best year on record, and clear by some way the RUB3.5 trillion ($40.5bn) it managed in 2025.

But the picture is clouded by the strain of sky high borrowing costs. Three years of state-directed lending to war-related industry are beginning to surface as credit losses at exactly the moment the CBR's own easing cycle is handing banks a cheaper funding book. The upgrade measures the second effect. It does not net off the first, which is why the profit number and the provisioning warning arrived in the same document.

Russia had 301 operating banks on August 1 by the CBR's own count - 212 holding a universal licence, 89 a basic one - with assets worth roughly 90% of GDP. The money in that system is made by only a handful of banks. The bulk of Russia's banks are small fry.

The margin the rate cuts built

After the last CBR rate cut to 14% funding costs fell 0.9pp q/q in 2Q26 as short-term retail and corporate deposits repriced, while asset yields declined a more moderate 0.4pp. The gap between those two numbers is the upgrade. Retail lending rates came down only modestly, so the margin the sector earns on the difference widened to 5.5%.

The CBR raised its full-year net interest margin forecast to 4.9%-5.1% after folding in the 1H26 results. It left the corporate cost of risk forecast at 1.3%-1.7% and the retail range at 2.2%-2.6%.

Those cheaper deposits are a direct product of policy. The key rate has come down from a wartime peak of 21% to 14%, where it has sat since a quarter-point cut made on July 24 while prices were still accelerating rather than slowing. Anton Tabakh, chief economist at rating agency Expert RA, reckons there is no more than half a percentage point of easing left this year, most likely in two quarter-point steps. The board meets again on September 11.

Where the losses are moving

Corporate cost of risk rose 0.7pp q/q to 1.3% in 2Q26 as banks recognised higher losses on loans to industrial companies. Retail went the other way, falling 0.8pp to 2.2% on better quality in unsecured consumer lending, and it is the corporate side the CBR expects to keep deteriorating through 2H26.

The headline arrears numbers still look benign. The share of overdue corporate loans slipped 0.1pp month-on-month (m/m) to 3.5% in July, while overdue retail loans held at 5.8%.

A wider measure is less comfortable. CBR data for 11M25 put non-performing loans at 11% of the total book, or RUB10.4 trillion ($120.3bn), and consultancy Kept estimated that around 15% of banks' corporate portfolios - roughly RUB13 trillion ($150.3bn) - need complex restructuring. Extending maturities by one to three years, with a grace period during which the borrower pays two-thirds of the interest or less, was the restructuring tool of choice in 2025. A loan on those terms is not overdue.

Much of the exposure was built deliberately. Promsvyazbank, the state lender rebuilt as the financial backbone of the war economy, posted a RUB19.2bn ($222mn) loss for 2025 after roughly tripling its provisions - the first full-year loss at a major Russian bank since the invasion, and at the one institution whose loan book is closest to the defence contractors.

Sberbank is still most of the answer

Sberbank (MOEX: SBER), the state-controlled lender that routinely earns the lion's share of the sector's profit, posted a record IFRS net profit of RUB1.01 trillion ($11.7bn) in 1H26, up 19% year-on-year (y/y), on a return on equity of 24.2% and a net interest margin of 6.5% - a full percentage point above the sector's. Its own cost of risk fell to 1% in 2Q26 on better credit quality in new retail lending.

Shareholders approved a record RUB850.2bn ($9.8bn) dividend for 2025, half the bank's IFRS profit for that year. More than half of the payment goes to the government, which holds 50% plus one share through the National Wealth Fund, and the finance ministry has budgeted RUB397.5bn ($4.6bn) of Sberbank dividend income for 2026.

VTB (MOEX: VTBR), the second-largest lender, lifted 7M26 net profit under Russian accounting standards 1.6-fold y/y to RUB291.9bn ($3.4bn). Below the two state giants sit Gazprombank, the gas-linked lender the West was slow to sanction, private-sector Alfa-Bank, Sovcombank, online lender T-Bank, MTS Bank, state housing agency DOM.RF and Bank Saint Petersburg. The listed names trade on the Moscow Exchange (MOEX), which foreign investors have been unable to touch since 2022 - so the sector's valuation is set entirely by domestic money.

Capital is where the strain shows

The sector's total capital adequacy ratio fell 0.5pp m/m to 13.5% in July after banks accrued RUB0.9 trillion ($10.4bn) in dividends. (The mandatory minimum is 10%.) Renaissance Capital, working from CBR data and bank disclosures, put the drop at 0.6pp and read it as a distribution effect rather than any broad deterioration in operating performance.

The spread between individual banks is wide. Sberbank's ratio dropped 1.4pp to 13.2% after its payout; VTB's slipped 0.1pp to 9.7%, the thinnest of the large lenders and less than half Bank Saint Petersburg's 19.8%. MTS Bank fell 0.1pp to 12.4% and DOM.RF 0.3pp to 11.6%, while Sovcombank edged up to 11.1% and T-Bank held at 12.5%. A sector paying out record dividends into a rising corporate cost of risk is spending the buffer it may want later.

What the forecast rests on

Lending is contributing. Loan growth accelerated to 1.2% m/m in July and 5.3% year-to-date, with corporate borrowing up 1.3% m/m driving the pick-up while retail slowed to 0.8%. Mortgages are the weak spot: new issuance fell 25% m/m, and the state-subsidised share of it dropped 13pp to 52%, the lowest since mid-2023.

Banks earned RUB443bn ($5.1bn) in July alone, up 18% m/m and 12% y/y, taking the 7M26 total to RUB2.8 trillion ($32.4bn), up 32% y/y, on a return on equity of 22%. Annualised, that is already inside the new forecast range without a strong second half.

So the record year turns on two things holding at once: funding costs continuing to fall faster than asset yields, which two more quarter-point cuts would deliver, and corporate provisioning staying inside the 1.3%-1.7% band. The CBR has just told the market it expects the second one to be tested.