Moody’s Lowers Ratings of Russia’s Largest Banks

MOSCOW, July 5 (RIA Novosti) – Moody’s Investors Service on Friday downgraded the long-term senior debt and deposit ratings of several major Russian banks following a reassessment of the Russian government’s capacity to provide monetary support to these banks in case of need.

The outlook on these ratings remains stable, the international ratings agency said in a statement.

The list of the affected banks includes Sberbank (from A3 to Baa1), Bank VTB JSC and VTB24 (from Baa1 to Baa2), and the Russian Agricultural Bank (from Baa1 to Baa3).

“Moody's review for downgrade focused on the sustainability of Russian government finances and reserves to cover for any capital and liquidity shortfall at large Russian banks in the context of a systemic crisis,” the agency said.

The agency, which launched the review for downgrade in April, justified the rationale behind its reassessment by citing two key factors affecting the stability of the Russian banking system:

“The government's fiscal position has weakened compared to 2008, reducing the country's ability to absorb potential shocks, such as a prolonged decline in oil prices.”

“Fiscal reserves (Reserve Fund and National Wealth Fund) accumulated by the government to cover the budget and pension deficits diminished materially since 2008, and accounted for 8.5 percent of the country's GDP at mid-2013, as opposed to 16.1 percent in 2008.”

At the same time, the stable outlook “reflects Moody's opinion that the debt and deposit ratings of large Russian government-controlled banks are unlikely to come under severe negative pressure in the next 12-18 months,” the agency said.

Moody’s had earlier noted Russia’s lower post-crisis growth potential as well as stagnating oil production and “the economic volatility that stems from Russia's dependence on commodity output and exports.”

According to the official forecast by Russia’s Economic Development Ministry, the country’s GDP growth is expected at 3.6 percent this year and 4.3 percent in 2014. Meanwhile, the Russian government is planning to keep inflation at 5-6 percent.

Russia’s GDP grew only by 3.4 percent last year, the lowest since the deep recession of 2009, with weak demand for Russian exports in Europe and faltering investment.