Moody’s improved the Outlook for Russian banks

By the end of 2016, Russia’s GDP will shrink by only 1%, and the stabilization of world prices and ongoing government measures give hope that in 2017 the economy will return to growth, says the international rating Agency Moody’s. In this regard, the Agency’s analysts raised the forecast of development of the Russian banking sector from “negative” to “stable”.

“The slow economic recovery and the stabilization of the macroeconomic indicators in Russia will support the operating environment for banks. Therefore, we expect to improve the profitability of the banks and preserve their capital,” — said Vice-President, senior credit analyst at Moody’s Irakli Pipia.

Moody’s analysts expect that by the end of 2016, the Russian banks will be able to make a profit, but the quality of their assets continues to deteriorate, albeit at a slower pace than before. As a result, in the next year the share of problem loans will increase in average for the banking system to 14-15 vs 12% at the end of 2015.

Moody’s notes that during the forecast period, a significant stabilizing effect on the banking system of Russia will continue to provide the state’s measures for the support of the largest systemically important banks. These measures, in particular, helped to maintain the total capitalization of the Russian banks: according to experts Moody’s, in the foreseeable future it will decline at a moderate and controlled pace.

On the positive side, analysts also include the improvement of the ratio of the volume of loans and deposits and, as consequence, reduction of dependence of banks from the interbank market. The negative is that the high expenditures for the creation of reserves for possible losses on problem loans.

Earlier, the Bank of Russia reported that in January—September 2016 the total net profit of Russian banks amounted to 635 billion rubles, which is five times higher than the figure for the first nine months of 2015. The amount of reserves on possible losses according to the Bank, from the beginning of 2016 increased by 6.6%, or 358 billion rubles, while during the same period in 2015 they increased by 23,8%, or 963 billion rubles.