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PRESS RELEASE:Fitch:Russia Bks May Need At Least $22 Billion Capital

Fitch Ratings-London/Moscow-01 July 2009: Fitch Ratings has today published an assessment of Russian banks' recapitalisation needs resulting from ongoing asset quality problems in the sector. In its base case scenario the agency estimates that the sector will require a further RUB674bn (USD22bn) of capital injections, while in a pessimistic scenario additional capital contributions of RUB1,880bn ( USD60bn) may be needed. Rating actions on individual banks will continue to be driven primarily by the extent of each institution's asset quality problems, its degree of loss absorption capacity and the sufficiency and reliability of contingency recapitalisation plans.

"While the Russian banking sector's asset quality problems and capital needs are likely to be substantial, risks are mitigated by ongoing government support for both the banking sector and the broader economy, and stronger oil prices," says Alexander Danilov, a Senior Director in Fitch's Financial Institutions group.

"However, there remains considerable downside risk, as reflected in our pessimistic scenario, due to a lack of visibility in respect to the extent of current asset quality problems, the sharp contraction in economic activity in H109 and the very high dependence of Russian economic performance, government finances, asset prices and the exchange rate on the oil price," adds Mr Danilov.

Fitch's base case scenario is built on impaired loans in the sector rising to 25%, with ultimate loan losses equal to half of this, or 12.5%. In its pessimistic scenario, Fitch considers the possibility of impaired loans rising to 40% and losses to 24%. Based on management disclosure by rated banks, impaired loans stood at approximately 10% of the sector portfolio as at 1 March 2009; however, Fitch notes that this was still at a relatively early stage of the current economic downturn, and that management disclosure may not always capture all asset quality problems. Impaired loans are defined as exposures more than 90 days overdue and loans whose maturities have been extended because of borrowers' inability to meet initial payment schedules.

"With four large state-controlled banks, which represent around 43% of the sector, having received an estimated RUB760bn, or USD24bn, in new capital since end-Q308, future recapitalisation needs are likely to be centred primarily on privately-owned institutions," says James Watson, Managing Director in Fitch's Financial Institutions group. "In that context, Fitch views as potentially positive reports that the Russian government may adopt a programme to recapitalise large and mid-size banks - those with assets of more than RUB50bn - by exchanging government debt for banks' preference shares."

The presentation containing the capital analysis, entitled 'Asset quality problems weigh on Russian bank ratings' is available on www.fitchratings.com. Fitch plans to publish a full report on the Russian banking sector in July.

Contacts: Alexander Danilov, James Watson, Moscow, Tel: +7 495 956 9901

Media Relations: Marina Moshkina, Moscow, Tel: +7 495 956 9901, Email: marina.moshkina@fitchratings.com; Hannah Warrington, London, Tel: +44 (0) 207 417 6298, Email: hannah.warrington@fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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