This week's instability in the banking sector, following the suspension of operations by Guta Bank and the declared insolvency of two other Russian banks, have triggered a fall on the interbank crediting market and the outflow of private deposits, S&P says in a press release.
Experts of the agency believe that all of Russia's private banks, especially those of them that hold a rather large amount of private deposits, have now found themselves in a vulnerable position.
The situation has stabilized somewhat as of July 9, 2004, thanks in part to the Central Bank's cut on compulsory reserves, which will soon increase the amount of cash on the financial market, S&P reports.
Standard & Poor's goes on to say that it has highlighted the Russian banking sector's structural risks for several years now, most notably the inefficiency of regulation and supervision, the non-transparency of information about banks' owners and the imprudently high concentration of assets and liabilities. Until these defects are redressed, the Russian banking sector be in danger of instability.
The Russian economy is growing at a fast pace and has a substantial liquidity reserve in the public and the private sectors thanks to a large inflow of export returns from the sale of fuels and steel, S&P says. Russia's Treasury is in good condition right now, and can afford a bailout to the banking sector, agency experts argue.
Standard & Poor's believes that the credit ratings assigned to 21 private Russian banks (CCC to B+) adequately reflect the high level of credit risk. The average level of Russian banks' credit ratings is B-, which reflects the high level of credit risk and high sensitivity to unfavorable conditions in the economy and the business sector. This week's events are yet another proof of this fact, reads the press release.
If the current nervousness in Russia's banking sector has a long-term adverse effect on the operations or the solvency of some specific bank, Standard & Poor's will respond by downgrading its rating accordingly, the S&P press release says.
