Moody's downgrades Russia's 3 top lenders
Moody’s rating service downgraded the long-term senior debt and deposit ratings of Russia’s key state lender Sberbank (to Baa1 from A3), Bank VTB and VTB24 (to Baa2 from Baa1) and Russian Agricultural Bank (to Baa3 from Baa1). The outlook for these ratings is stable.
The agency pointed to Russia’s over reliance on high oil prices and reduced Reserve Fund and National Wealth Fund. The break even price of around $105 per barrel the federal budget now relies on is overly optimistic and compares to just $40 in 2008.
“Although Moody's central scenario anticipates elevated oil prices in 2013, the rating agency also sees demand-side tail risks for oil prices related to the possibility of (1) a more pronounced and prolonged recession in the euro area, and (2) slower-than-expected growth in major emerging economies,” Moody’s said in its statement.
And the accumulated financial stock in the two funds went down to 8.5% of the country's GDP at mid-2013, from 16.1% in 2008. “As such, fiscal reserves now provide a somewhat weaker layer of protection to the banking system,” the agency said. “While the government's new fiscal rule (spending cap) should help to contain expenditures, this rule has not been tested yet,” Moody’s added. The fiscal rule is used to calculate affordable budget expense limits, which is determined by the average oil price.
However, the banks said the downgrade wasn’t going to affect either their profile nor operations. “VTB24 isn’t expecting significant consequences for the rating cut. This is largely a formal indicator and it can’t effect either the bank’s stability, nor its business,” the bank’s representative told Vedomosti daily.
And Russian Agricultural Bank is the state’s key instrument to support the country’s agriculture. This means that state support will always remain in place and at a required level, as well as be the priority, as Vedomosti quotes its source in the bank.
The Moody’s action comes as at the end of the review for downgrade initiated in April 2013.