Moody's international rating agency has changed the Russian banking system outlook to 'negative' from 'stable' on global turbulence which is weakening the banking sector's performance, the agency said on Monday.
"The outlook change to negative for the Russian banking system reflects concerns that the weak global economic landscape and financial market volatility will weaken Russia's operating environment, negatively affecting banks through a system-wide liquidity contraction, slower credit growth and pressured asset quality," Moody’s said in a statement.
The outlook expresses Moody's expectations for the fundamental conditions in the banking sector over the next 12-18 months.
Moody's forecasts that Russia's real gross domestic product growth will slow down to 2.8 percent in 2012 compared to an estimate of 3.8 percent in 2011 due to a weak global recovery. Increasing risks to global energy demand may impact the operating environment for Russian banks over the outlook horizon as economic growth is largely driven by oil prices, the agency added.
"Global financial market volatility, reduced access to wholesale funding, continued capital flight and downward pressure on the ruble, have already lead to a liquidity squeeze in the Russian banking system," Eugene Tarzimanov, Moody's vice president and author of the report, was quoted in the statement as saying.
"We expect that this will continue and trigger slower credit growth, leading to reduced credit access for borrowers, as banks increase interest rates and tighten collateral rules. This will further lead to subdued economic growth and an increase in banks' loan loss provisions," Tarzimanov added.
Moody's also said that government help would remain key for the country's banking sector, the central bank and the Finance Ministry having already started placing its liquidity-support instruments.
"While we believe that this support is likely to intensify going forward, there is no certainty that it will be made available to midsize and small private-sector banks, if needed," Tarzimanov added.
Moody's said that under its central scenario, Russian banks had sufficient capital buffers and recurrent earnings to cope with the increasing credit and investment losses that the agency believed were likely to occur.