Moody’s improves outlook on Russia’s banking system to stable

A worker paints the facade of a branch of Sberbank in central Moscow © Sergei Karpukhin
The outlook from the Moody’s rating agency for Russia's banking system has been revised to stable from negative due to “emerging signs of the country's economic recovery which will likely benefit its banks.”

The upgrade reflects Moody's expectation on the evolving bank creditworthiness in Russia over the next 12-18 months, the agency said.

"Slow economic recovery and stabilization of macroeconomic indicators in Russia will support the operating environment for Russian banks," said Vice President and Senior Credit Officer at Moody's Irakli Pipia. "We therefore expect improvements in banks' profitability and capital retention," he added.

Moody’s expects the Russian economy to contract by only one percent this year, with “stabilization in oil prices and strong government stimulus fueling prospects for positive growth in 2017.”

Russian banks are likely to post positive net profitability in 2016 and show a gradual improvement, the rating agency said.

The agency added that it expects government support to remain a stable influence on bank ratings for the largest systemically important banks, “as supported by a number of policy initiatives and announcements made by the Central Bank of Russia and the Russian government pledging assistance to Russian banks affected by sanctions.”

In January, Moody’s downgraded Russia’s sovereign credit rating to just one notch above non-investment grade. The move was explained by the sharp decline in oil prices and Russia’s national currency. It followed similar negative outlooks from Fitch and S&P.

Standard & Poor’s sharply revised its outlook in April, saying it expected the Russian economy to return to growth in 2016, adding 1.9 percent. The agency’s previous report forecast the country's GDP growth at 0.5 percent in 2015 and zero growth in 2016.