Standard & Poor’s Ratings Services has taken the following rating actions on 11 Russian banks, reflecting improvements in the economic and operating environment in Russia :

  • The long-term counterparty credit rating on International Moscow Bank (IMB) was raised to ‘B+’ from ‘B’, and the short-term rating was raised to ‘B’ from ‘C’
  • The long-term ratings on Alfa Bank, MDM Bank, OJSC Commercial Bank Petrocommerce (Petrocommerce Bank) were raised to ‘B’ from ‘B-‘
  • The long-term ratings on International Industrial Bank, DeltaCredit Bank, and Surgutneftegazbank were raised to ‘B-‘ from ‘CCC+’
  • The long-term rating on Impex Bank was raised to ‘CCC+’ from ‘CCC’
  • The long-term rating on Aljba Alliance was raised to ‘CCC’ from ‘CCC-‘

The outlooks on all the above-listed entities are stable. At the same time, the short-term ratings on all of the above except for IMB were affirmed at ‘C’.

In addition, Standard & Poor’s:

  • Revised its outlook to positive from stable on Ural-Siberian Bank OJSC, and affirmed its ‘B-‘ long-term and ‘C’ short-term ratings on the bank
  • Revised its outlook on Menatep St Petersburg to developing from stable, and affirmed its ‘CCC+’ long-term and ‘C’ short-term ratings on the bank
  • Raised its Russia national scale rating on Petrocommerce Bank to ‘ruA’ from ‘ruBBB+’
  • Assigned its ‘ruBBB’ Russia national scale rating to DeltaCredit Bank

“The economic and operating environment in Russia is now well into its fourth year of rebound and expansion,” says Standard & Poor’s credit analyst Scott Bugie. “While Russia ‘s oil and gas exporters, boosted by high-energy prices, have led the recovery, progress in economic reforms has contributed to a strengthening of the country’s economic infrastructure and a broadening of its economic base.”

“In addition, the national government currently runs a balanced budget and has reduced its debt to manageable levels. A direct consequence of these trends is that the loan and security portfolios of Russian banks are in better shape than a few years ago,” adds Standard & Poor’s credit analyst Irina Penkina.

Russian banks are competing fiercely for growing business flows, in both the corporate and retail sectors. The retail deposit market is booming, driven by individuals’ increasing confidence in banks and the sector’s aggressive pricing tactics to draw in funds. The result is a banking sector that by almost all measures has expanded 20%-40% per year since 1999, with no let up in sight. The recent and significant expansion of retail banking in Russia is a particularly welcome trend, for it shows that the market is entering a new and better-balanced stage of development.

“Unfortunately, further upward potential for Russian bank ratings remains limited. The Russian banking industry is still vulnerable to a reversal of the fortunes of the national economy. While the Russian government and industrial economy have benefited from several key reforms, the absence of real change in the banking sector during the past few years is disappointing in comparison,” adds Standard & Poor’s credit analyst Ekaterina Trofimova.
Sberbank (not rated) and other Russian public-sector banks remain as dominant as ever, and distort commercial policy on both sides of the balance sheet. Single-name risk concentrations in securities, loans, and funding remain very high. The dangerous practice of owners using their banks to finance industrial interests shows no sign of abating. Practical implementation of banking law remains spotty and inappropriately bureaucratic. Supervision by the Russian Central Bank has been largely ineffective, and the government has delayed key banking reforms.

In addition, the Russian banking industry is in the midst of a competitive and cost-heavy upgrading and expansion of infrastructure. Thus, a key concern for Standard & Poor’s is the direction of the sector’s recurrent profitability.

“Increasing competition and the improving credit quality of customers has driven down operating margins,” says Bugie. “Banks have increasingly relied on gains from securities trading to compensate for thinner profits from commercial banking, and recurrent profitability does not appear to be improving.”