Russia's top 30 banks need further capitalization - S&P
MOSCOW. Feb 20 (Interfax) - Most of Russia's commercial banks are undercapitalized because of their high risk appetites and lack of business diversification, Standard & Poor's Ratings Services said in a report.
"We believe that only very few of Russia's top 30 banks have levels of capitalization that are 'adequate' or higher, according to our criteria. Most of them have 'moderate' or 'weak' capitalization," the agency said in the report, entitled "Russia's Top 30 Banks Need Further Capitalization and Lack the Means to Improve in the Foreseeable Future."
"Most Russian banks will not be able to generate enough internal capital to support expected asset growth throughout 2012, according to our estimates, even if they have scaled down growth targets because of heightened market competition and the recent financial turmoil," said Standard & Poor's credit analyst Sergey Voronenko.
Their capacity to generate capital is still constrained by recently squeezed interest rate margins and uncertainty about when business volumes will return to more sustainable levels, in S&P's opinion.
Current capitalization levels will continue to provide only a moderate cushion against the risks embedded in Russian banks' balance sheets, in S&P's view.
"We see their lack of geographic, business, and revenue diversification and high single-name exposure in their corporate loan books as being the main barriers to adequate capitalization," Voronenko said.
While the majority of Russian banks are undercapitalized they have good quality of capital compared with international peers' in mature markets, mainly thanks to the absence of hybrid securities in their portfolios. S&P expects Russian banks to maintain acceptable quality of capital within the next two or three years.
This lack of self-sustaining capital generation capacity is even more acute for many small Russian banks, which have only a single digit return on equity because of their high funding costs and very limited access to wholesale borrowings. Without regular capital injections from shareholders, Russian banks are likely to see their capitalization, as measured by S&P's risk-adjusted capital framework (RACF) eroding year after year, in S&P's view.