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.
(END) Dow Jones Newswires
07-01-091101ET
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