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In response to the persisting problem of bad quality of assets in the banking sector of Russia, the international rating agency “Fitch Ratings” published its expectations on Russian banks’ need for recapitalization. According to the agency’s basic scenario, the industry will need additional inflows for the value 674 billion rubles (≈22 billion USD); pessimistic scenario will require additional 1 trillion and 880 billion rubles (≈60 billion USD).

Asset quality is still a problem of almost every banking entity; there are troubles with their ability to absorb losses and maintain the required amount of capital. Experts noted, however, that despite those problems (which will remain anyway), negative effects are partially outweighed by the government’s anti-crisis policy as well as relatively high oil prices.

At the same time, high risk levels still remain, and this finds its reflection in the negative scenario, together with low transparency of the current situation and troubles with assets quality, sharp decrease of economic conditions at the very beginning of 2009 and high degree of dependence of Russia’s economic indicators, exchange rates and government finances on oil prices.

The basic scenario rests upon share of doubtful credits in the banking sector (to be increased up to 25%), with final losses (that is, bad credits) equal to half of that value – 12.5%. Pessimistic scenario provides a 40%-share of doubtful debts with 24%-losses.

“Fitch” analyzed data of banks being rated, and it appeared that share of doubtful credits at the beginning of March was approximately 10% (data based on management accounting records). However, the agency thinks that the data reflects the very beginning of today’s economic downfall, and that management accountancy may sometimes provide biased reflection of asset quality. 

“Doubtful debts (issued credits)” are defined as those overdue for 90 day or more, also – credits, repayment terms for which were extended due to inability of borrowers to meet initially agreed repayment schedule. Four banks under the government’s control (together holding approximately 43% of the industry) have already acquired financial support (≈760 billion rubles, or 24 billion USD). This basically means that further need for recapitalization will be attributed to private sector banks – says James Watson from “Fitch”.

Source: RBC