International organizations and rating agencies yesterday released differing assessments of the situation in Russian markets. Fitch said that despite the efforts of the authorities, the credit crunch may lead to a growth slowdown, and pointed out that the banking sector remains the Achilles heel of the country’s economy. According to the agency, the banks are facing challenging times with limited access to external markets. Although it noted that risks to the current sovereign rating (BBB+ with a “stable” outlook) have increased, it said that for now it would stick to its current rating and outlook.
The World Bank yesterday spoke in support of the way Russian authorities have been responding to the market crisis, and called it “adequate”. The World Bank’s permanent representative in Russia, Claus Roland, said that Russia was “well prepared” for the market upheaval, citing the fiscal surplus of the federal budget, large FX and gold reserves, and a balanced budget policy as positives. According to him, the economy is fundamentally stable, and the crisis temporary. He praised the finance ministry and the central bank for their efforts to provide enough liquidity to banks.
The current market crisis has likely put on hold Russia’s progress up the sovereign ratings scale. We no longer see a possibility of an upgrade to single as by any of the agencies by year-end. Although the current market crisis has not been prompted by any recent development in the country’s fundamentals, it could bring about a cooling down of the economy. While major banks should be able to meet their liquidity needs, we are not so sure about mid-sized and small banks. The latter indeed look vulnerable in the current conditions, and we would not be surprised to see a smaller and fitter banking/financial sector by the year’s end.
Author: Tatiana Orlova
