Moody’s improves outlook on Russian banks to stable from negative

MOSCOW, Oct 24 (PRIME) -- International rating agency Moody’s has improved its outlook on the Russian banking system to stable from negative, given emerging signs of the country’s economic recovery which will likely benefit its banks, the agency said on Monday.

“Slow economic recovery and stabilization of macroeconomic indicators in Russia will support the operating environment for Russian banks,” Vice President Irakli Pipia said. “We therefore expect improvements in banks’ profitability and capital retention.”

The rating agency expects the Russian economy to contract by only 1% this year, with stabilization in oil prices and strong government stimulus fueling prospects for positive growth in 2017, as noted in September 2016.

Russian banks are therefore likely to post positive net profitability in 2016 and show a gradual improvement over the outlook horizon. However, net interest margins remain below historic averages, at just under 4% in January–June of 2016. In addition, provisioning expenses will remain elevated given the need to improve nonperforming loan coverage.

Asset quality will likely to continue to deteriorate, albeit more slowly. The rating agency expects problem loans of rated banks to rise to an average of 14–15% of total loans over the next 12–18 months from 12% at the end of 2015.

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