Moody’s: Russian banks under pressure despite lower loan losses

MOSCOW, May 23 (PRIME) -- Credit risks on the Russian consumer lending market are gradually decreasing, but still remain a key challenge to domestic banks’ asset quality, Moody’s Investors Service said in a press release Monday.

“Most Russian specialized consumer lenders will post losses this year as pre-provision income is insufficient to fully absorb credit costs,” Petr Paklin, an assistant vice president at Moody’s, said. “However, the pressure will likely gradually subside in 2016 as banks recover net interest margins, resume new lending and benefit from a gradual decline in credit costs,” he said.

The declining cost of funding, which began last year, will help to support banks’ margins going forward, and net interest margins will likely continue to recover throughout the rest of 2016, Moody’s said.

Old business models are weighing on the profitability of lenders that survived the credit and interest rate shocks, the agency also said.

“Consumer lenders’ old business models, based on growing consumer incomes and high leverage, have run out of steam owing to economic recession and a decline in real disposable income,” Paklin said. “As a result, we consider that banks will focus on further cost optimization, lower-risk products and new sources of revenue to return to net profit going forward,” he said.

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