S&P especially negative on Russia's banking sector

By bne IntelliNews November 20, 2014

bne -

 

Russian banks are facing the most pressure out of the major emerging markets, as the end of US quantitative easing leaves financing in those countries facing a new reality, according to a new report by credit rating agency Standard & Poor's. 

"We have a negative view on the banking industry in Russia," the report says, noting that almost 70% of S&P rating outlooks for Russian banks are now negative.

S&P sees all the banking sectors of major emerging markets under pressure, but Russian banks have been hit hardest of all for "idiosyncratic reasons". "Russian banks remain the most vulnerable [out of major emerging markets] due to the current operating difficulties created by Western sanctions and lower economic growth," write S&P analysts in the report.   

According to S&P, Western sanctions on Russia, in response to its aggression in Ukraine, directly affects more than 50% of Russia's banking sector assets, by restricting state banks' access to US and EU capital markets.

But sanctions will only have a limited direct effect on the state banks Sberbank, VTB, and VEB that are targeted by sanctions, because they have only a limited need for external financing, S&P believes. "Our analysis suggests the sector has enough liquidity to refinance its international debt falling due until the end of 2015," S&P says. "Still, the longer the sanctions last, the more challenging funding and liquidity conditions will become for banks as a whole, both in terms of access and cost."

But the indirect effects of sanctions will be more serious: "erosion in investor confidence, a general perception of higher risk of financing Russian banks, plus the possibility of increased capital flight and weaker economic growth."

"The main risks we see for 2015 are capital erosion on the back of rising risk costs and funding pressures," the report argues. According to S&P, a significant part of the banks' excess liquidity currently derives from large corporate deposits, which may dwindle, given that major corporate depositors - such as energy giants Gazprom and Rosneft - are under sanctions themselves with restricted access to foreign funding. At the same time, retail deposits are stagnating, as depositors are buying durable goods in response to the plunging ruble.

Worryingly, central bank funding already makes up 10% of total banks' liabilities, not far from the 13% mark reached at the peak of the global credit crunch in 2009. "We believe weak economic prospects will result in more bad loans and will pressure banks' capital and profitability," concludes S&P.

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss