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Global Credit Research - 13 Mar 2013
London, 13 March 2013 -- Russian banks' operations in Cyprus could incur moderate credit
losses if those banks have material exposures to Cypriot companies of
Russian origin or to Cypriot banks, says Moody's Investors
Service in a new Special Comment published today. Moody's
has identified three channels through which Russian banks are exposed
to Cyprus-related risks (1) loans to Cyprus-based companies
of Russian origin; (2) bank and corporate deposits and investments
in Cypriot banks; and (3) Russian subsidiaries of Cypriot banks.
The new report, entitled "Russian Banks: Cyprus-Related
Risks Could Lead to Moderate Credit Losses", is now available on
www.moodys.com. Moody's subscribers can access this
report via the link provided at the end of this press release.
Moody's central scenario does not assume a Cypriot sovereign default
or moratorium on external payments in Cyprus this year. However,
as noted by Moody's in February 2013, there is an elevated
probability that the sheer size of Cyprus's anticipated debt load
will compel authorities to pursue every avenue for debt reduction,
including private sector losses on Cypriot debt. The crystallisation
of these risks would be credit negative for Russian banks that have linkages
to Cyprus, although not likely to be material enough to warrant
rating actions, given the relative size of these exposures.
"The main contagion channel for Russian banks is their loans to
Cyprus-based companies of Russian origin. We estimate that
these loans totalled around $30-40 billion at year-end
2012, or around 15%-20% of Russian banks'
capital base. A potential Cyprus moratorium on external payments
could block loan repayments to Russia, leading to some asset-quality
pressures," explains Eugene Tarzimanov, a Moody's
Vice President Senior Credit Officer and author of the report.
The second channel through which Russian banks are exposed to Cyprus-related
risks is bank and corporate deposits and investments in Cypriot banks.
Moody's says that Russian banks had around $12 billion placed
with Cypriot banks (predominantly Russian bank subsidiaries in Cyprus)
at year-end 2012, plus around $1 billion invested
in the capital of their banking and non-banking subsidiaries in
Cyprus. While these investments are mostly based on parent-subsidiary
relationships, defaults by endogenous Cypriot banks, a deposit
freeze and/or a moratorium on external payments, could lead to some
losses for Russian banks. There are also indirect risks for Russian
banks related to Russian corporate deposits at Cypriot banks. We
estimate that non-resident Russian corporate deposits in Cyprus
could approach $19 billion at 1 September 2012. In case
of bank defaults, deposit freeze or burden sharing with wholesale
depositors, these companies could take losses on their deposits
or lose the possibility to repatriate their funds. In turn,
this will decrease their capacity to service bank debt back in Russia.
The third transmission channel is Russian subsidiaries of Cypriot banks.
This is not as significant as the previous two as the contagion risk affects
just a few small Russian subsidiaries of Cypriot banks. These subsidiaries
could face heightened credit risks, reputational damage and deposit
outflows because of concerns related to their parent banks' growing
Subscribers can access this report via this link: http://www.moodys.com/research/Russian-Banks-Cyprus-Related-Risks-Could-Lead-to-Higher-Credit--PBC_151019
NOTE TO JOURNALISTS ONLY: For more information, please call
one of our global press information hotlines: London +44-20-7772-5456,
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VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Yves J Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's says Russian banks' Cyprus-related risks could prompt moderate credit losses
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
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