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14 Oct, 2008 03:13

Ratings downgrade puts focus on banks and ratings agencies

The rating outlook for 13 Russian banks has been downgraded by international rating agency Standard and Poor's. The Government says this will not affect its plans for helping cash-strapped banks, as banking industry players say it highlights issues with t

In September foreign rating agencies – Moody’s, Fitch and Standard and Poor's changed the rating of some Russian banks due to the financial crisis hitting Russia. And now S&P has downgraded the rating outlook to ‘negative’ for 13 Russian financial institutions – among them major players like Uralsib bank, Troika dialog and Alfa, Russia's largest privately owned bank. Elena Romanova, Associate Director, Financial Institutions at Standard and Poor’s says the downgrades reflect the tight liquidity environment and the potential implications this has for bank asset bases.

“We saw sharply increased liquidity risks about 2 month ago, these problems still persist.  We now see transformation of these liquidity risks from within the banks spilling over to the corporate sector. We see much more problems for corporate borrowers to refinance, especially short-term debt. And respectively we expect this to lead to a deteriorating quality of assets.”

The high levels of foreign borrowing and lack of funds for refinancing have forced the government to support the banking sector providing $86 billion. A legal change gives the Central Bank the right to provide loans to all banks that are in crisis. But Richard Hainsworth, General Director of Rusrating says the ratings basis underpinning the perception of risk attributed to Russian companies is skewed in favour of international ratings agencies.

“The Russian government has favoured the international ratings agencies, and they’ve had a competitive advantage in Russia, over the local rating agencies.” 

But the Deputy head of Russia’s Central Bank, Alexey Ulyukaev, says a foreign rating is not crucial for Russian banks, and Garegin Tosunyan, President, of the Association of Russian banks, agrees.

“The last few months have shown that international ratings dont always reflect the real situation, and one can't always rely on their estimates. Let's just remember Lehman Brothers had an A rating. On our domestic market we should have our domestic ratings together with international ones.”

The Russian system may manage itself using other evaluation methods like asset ratings, which will reflect the quality of banks holdings in other sectors of the economy.

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