Rus­sian banks out­look neg­a­tive

The Pak Banker - - Front Page -

LON­DON

The out­look for Rus­sia's bank­ing sys­tem re­mains neg­a­tive, says Moody's in a new Bank­ing Sys­tem Out­look pub­lished to­day. The main driv­ers of the out­look are Moody's ex­pec­ta­tions of ( 1) mod­est and de­cel­er­at­ing eco­nomic growth in Rus­sia, which re­mains highly sen­si­tive to global oil prices; (2) weaker as­set qual­ity and cap­i­tal ad­e­quacy; and (3) pres­sured fund­ing and liq­uid­ity pro­files.

Moody's says that oper­at­ing con­di­tions for Rus­sian banks are likely to re­main chal­leng­ing through the re­main­der of 2012 and into 2013. The rat­ing agency es­ti­mates that GDP growth will slow to 3.5% in both 2012 and 2013, com­pared with 4.3% in 2011.

More­over, Rus­sian eco­nomic per­for­mance faces ma­te­rial down­side risks due to uncer­tain­ties around oil prices and po­ten­tial cap­i­tal flight if the euro area cri­sis intensifies. In­ter­na­tional and do­mes­tic in­vestor sen­ti­ment to­wards Rus­sia will lik­ley re­main weak over the next 12- 18 months, which is credit neg­a­tive as it will continue to sup- press the banks' abil­ity to at­tract mar­ket-based fund­ing and cap­i­tal.

Moody's ex­pects an in­crease in the share of prob­lem loans to around 11% at year- end 2013, from an al­ready high 9% in both 2012 and 2011, due to slower eco­nomic and credit growth. While the share of prob­lem loans de­creased in 2011, this was mainly at­trib­uted to high credit growth, which Moody's does not ex­pect to see in the next 12-18 months. In ad­di­tion, high sin­gle- name and re­lated-party exposures will continue to rep­re­sent a sig­nif­i­cant source of credit risk for many banks.

The cap­i­tal ad­e­quacy of the bank­ing sys­tem will re­main weak, fol­low­ing a de­cline in reg­u­la­tory cap­i­tal ra­tios in 2011 and 2012 due to credit growth and the in­tro­duc­tion of new reg­u­la­tory mea­sures ahead of Basel II's im­ple­men­ta­tion in 2014. Ac­cord­ing to Moody's cen­tral sce­nario anal­y­sis, the sys­tem reg­u­la­tory Tier 1 ra­tio could de­crease to around 7.5% at year-end 2013, from 9.5% at mid-2012, due to higher credit pro­vi­sions and in­vest­ment losses.

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