"Susceptible to Potential Systemic Stress"
// Fitch Ratings Gives Its Evaluation of the Russian Banking Sector
Yesterday the rating agency Fitch Ratings published its overview of the systemic risks of the banking systems in 81 countries worldwide. Russia was in a group with Azerbaijan, Iceland, Ireland, and South Africa, which are considered the largest potential risks. Commenting on the rating, an agency analyst said that the Russian banking sector is "susceptible to potential systemic stress" due to the high growth in share prices, real estate, the real effective exchange rate of the ruble, and the excessively high correlation between the volume of credit extended to the private sector and GDP.
Besides the potential for problematic situations arising from outside influences on the banking system, the Fitch Ratings also take into account additional risks that arise when the pace of the increase in credit extended to the private sector exceeds an average of 15% for two years in a row. For Russia, that indicator in 2006 was 24%. Russian banks were also considered to still be "relatively weak by international standards" because they rely heavily on the promise of support from the government or from shareholders.
Though the report raised hackles in the Russian banking industry, some analysts admitted that the Fitch Ratings were probably fairly subjective. Analysts also pointed out that some traditional problems in the industry that had led to low ratings were only now changing, such as the negligible level of transparency at the majority of private Russian banks. Still, however, many took umbrage with the implication that Russia's banks carried an unusual level of risk. First Deputy Chairman of the Bank of Russia Andrey Kozlov dismissed the idea that the evolution of Russia's banking sector was proceeding down a dangerous path. Asked about what is involved in the necessary minimization of the risks associated with the process of development in the industry, Kozlov replied, "that is the key question."
Igor Moiseev, Yulia Chaikina, Alexander Potapov, Olga Kochina
All the Article in Russian as of Sep. 07, 2006
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