12 Oct 2010 13:31

Russia's banking system outlook changed to stable from negative

MOSCOW. Oct 12 (Interfax) - On Tuesday, Moody's changed the outlook for the Russian banking system to stable from negative, reflecting the improving operating environment, the banking system's sizeable capital and loan-loss provisioning buffers, and its improved liquidity profile, Moody's Investors Service said in its new Banking System Outlook on Russia.

"The outlook change to stable for the Russian banking system is based on Moody's view that the fundamental credit conditions within that system have become more sustainable following the recent financial crisis. We expect slow, but positive economic growth to continue in the near to medium term, which will improve the outlook for the banks' asset quality and profitability," Eugene Tarzimanov, Moody's Vice President -- Senior Analyst and author of the report was quoted as saying.

The report said: "Substantial state and central bank support was crucial in stabilising the banking system during the crisis. The rating agency notes that support measures will likely be withdrawn gradually, with several support programs remaining in place through 2010/11 to safeguard the recovery. While the regulatory environment remains weak by international standards, there have been some improvements."

"Importantly, in Moody's opinion, Russian banks have a sufficiently large buffer of accumulated loan-loss provisions and capital to cope with the still-weak asset quality; our assessment is that current loan-loss allowances and capital levels are sufficient to absorb expected credit losses. This is confirmed by our scenario analysis and underpins the stable system outlook," said Tarzimanov.

The report said: "System liquidity has improved, with solid inflows of retail customer deposits following deposit outflows that occurred at the height of the crisis. The banks currently hold a sizeable cushion of liquid assets to absorb any renewed market stress.

"Moody's cautions that despite the stable system outlook, the Russian banking system remains weak in a global context. This weak position is reflected by the un-weighted average deposit rating for Russian banks, which remains in the single-B (non-investment grade) range.

"The Russian banking system suffered significantly in the crisis in 2008 and 2009 because of its fundamental weaknesses. While system-wide credit conditions have returned to a sustainable level, the system remains vulnerable to external shocks. Moody's considers that recent proposals to further tighten regulation have the potential to address fundamental weaknesses of the system in the longer term."