Outlook for Russian banking system ‘positive’ as asset quality improves

The outlook for Russia's banking system has been raised to ‘positive’ from ‘stable’ by global rating agency Moody’s. 

In a recent note to clients, Moody’s said the move reflects its view that the country’s banks' asset quality and capital adequacy will benefit from an “improving operating environment.”

Moody's currently forecasts that Russian GDP growth will average 1.7% in 2018 to 2019 and that inflation will remain low. Growth will be underpinned by resurgent oil prices that support the Russian rouble.

"Russia's system-wide problem loan ratio will decline to 9.6% over the next 12 to 18 months from 11% reported as of end-2017, and may decline further when the central bank completes, as announced, the transfer of a big portion of problem loans and non-core assets from the balance sheets of several large banks bailed-out in 2017 to a dedicated "bad bank"," said Olga Ulyanova, Vice President and Senior Credit Officer at Moody's. 

The rating agency said the sector's credit losses will decline to around 1.2% of average gross loans in 2018 and 2019 from 1.6% in 2017. Capital adequacy will improve given Russian banks' sound profitability and modest loan growth, it added.

Moody's estimates the ratio of tangible common equity to risk-weighted assets will rise to 10.1% as of end-2019 from 9.7% at the end of 2017.

Government support for the country's banks has strengthened given the increasing state domination of the sector following recent nationalisations, showing that the Russian government and central bank have the propensity and capacity to support the largest and systemically important banks, the agency concluded.