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Announcement:

Moody's: Russia's banking system outlook stays negative for fourth consecutive year

 The document has been translated in other languages

01 Oct 2014

London, 01 October 2014 -- The 12-18 month outlook stays negative for Russia's (Baa1 negative) banking system, as the banks' operating environment is becoming more challenging, with detrimental consequences on asset quality and profitability, says Moody's Investors Service. The negative outlook takes into account the ongoing geo-political tensions and economic sanctions that have further accelerated the downward trend in Russia's GDP growth.

The new report "Banking System Outlook: Russia", 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.

"Alongside the likely increase in problem loans and increased provisioning needs, wholesale funding conditions are starting to become more difficult for the banks" says Irakli Pipia a Moody's Vice President, Senior Analyst and author of the report.

"We think that the main reasons for the increasingly difficult funding markets are the lack of cross-border market access, and increased cost of funding domestically. But, we also need to highlight that even without further escalation of the Ukrainian conflict and accompanying economic sanctions, current trends indicate an economic slowdown in Russia, worsening an already unfavourable climate for lending and investment, " adds Mr. Pipia.

Moody's says that large capital outflows indicate that the investment climate remains poor, which will suppress growth prospects. Consequently, Moody's expects lending growth to slow to 5%-10% in nominal terms over the outlook horizon from 17% in 2013, in line with stagnating trends in the economy. Government support only partly mitigates the negative drivers.

The leading banks reported sharp increases in provisioning expenses in H1 2014, and problem loans will likely rise to 9.5% of total loans over the next 12-18 months because of the tighter credit conditions (end-2013: 7%). Furthermore, the banking system's chronic problem of high single-borrower and related-party exposures continue to exacerbate asset quality risks. At the same time, rising loan loss provisions and cost of risk, in addition to increased funding costs, will lead to lower post-provision profitability, which has already deteriorated during the first half of 2014.

With the total regulatory capital adequacy ratio at 12.8% as at June 2014, capital buffers in the Russian banking system remain comparable to emerging-market peers. However, the difficult macro conditions, negative asset-quality trends and diminishing internal capital creation will place further pressure on capital cushions during the outlook horizon.

Subscribers can access this report via this link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_174802

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Irakli Pipia
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves J Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: Russia's banking system outlook stays negative for fourth consecutive year
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