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Moody’s expects that the Russian banks will come out of the crisis in 2017

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Moody’s expects that the Russian banks will come out of the crisis in 2017

Moody’s expects that the Russian banks will come out of the crisis in 2017
July 20
12:30 2016

The international rating agency Moody’s has made a forecast about the exit of Russian banks from the crisis in 2017. According to the agency, this year the sector will balance on the verge of break-even, directing all their profits to reserves for distressed debts.

“The majority of Russian banks will demonstrate a small profit or, at least, the zero- sum on the results of 2016”, – said Jaroslav Sovgira, Jr. Managing Director of the Moody’s banking group for the EMEA region. Moody’s expects the profit recovery of the banking system before the creation of the reserves in 2016 to nearly the index of 2014. It can happen due to the recovery of the net interest margin to 3.5 percent. However, Moody’s also predicts that nearly all the profits will be directed on reserves by most banks.

“We can see the continued growth of the overdue debt. If to focus on the IFRS reporting, we expect that the bad loans will rise to about 14-16 % level. This approximately corresponds to the level of overdue and restructured loans. This is because during these two years we can see a rather large increase in loans that are being restructured,” – noted Mr. Sovgira”. “On this basis we do not expect the significant reduction of allocations to reserves”.

The agency predicts that banks will restore the coverage level of bad loans with the reserves help to a “comfortable” level of 75 %, whereas it is much less at the moment. Moody’s expects an increase in demand for loans due to the funding costs decrease. They consider that the Central Bank will cut interest rates by 50-100 basis points before the end of the year.

“Nevertheless, the loan portfolio will not likely grow more than the rate of the inflation,” –said Jr. Managing Director.

“Even it may be even less, and the main driver of the growth will be corporate loans … the growth of the consumer lending is just beginning to recover, but not at all players” – he added. On the results of the year the outlook of the agency for the inflation in Russia is about 7 percent against the Central Bank forecast of 5-6 percent.

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