Fitch: CIS banks are stable, but depend on the raw material market conditions and macroeconomic policies

Fitch Ratings has published a new special report, which noted that the outlook for the banking sector in the CIS and Georgia in 2013 - stable.

This reflects the agency expected positive economic growth in this region, which is to maintain asset quality and profitability of banks. However, the outlook for banks in countries whose economies are dependent on commodity markets (Russia, Kazakhstan, Azerbaijan and Uzbekistan), are more specific, while on macroeconomic stability and / or policy in Ukraine, Belarus and (to a lesser extent) Georgia has more ambiguities.

Most banking systems in the region continue to have significant fundamental weaknesses, and / or have not yet fully recovered from the global crisis. This creates a great risk, in particular, in the case of negative events in the world or to lower commodity prices. Banks of Kazakhstan and Ukraine are still the most burdened with high levels of impaired loans, while Ukraine and Belarus due to weaker external finances and uncertainty in policy are most at risk in the event of increased stress in the financial markets or in macroeconomics.

Growth in lending by Russian banks is likely to slow in 2013 due to the limitations in terms of funding and capital and stronger regulation of retail lending. This slowdown may support the stabilization of the key indicators of creditworthiness of the sector, but the dependence on public funding should be increased, and the efficiency will be more moderate amid pressure on margins. Asset quality and leverage is expected to remain unchanged, but the problems in the corporate sector, the remaining from previous periods, and rapid growth in the retail segment are the risks for some banks, while the more stringent capital requirements may be difficult for credit organizations with less equity.

Strong growth in Kazakhstan, due to raw material market conditions, and began to be reflected in the volume of business of banks (for example, retail banking), and can also support the housing market is slowly recovering. This should have a moderately positive impact on asset quality and profitability of banks, although the sector is still burdened with a large amount of bad loans and poor quality of capital, while the competition is putting pressure on margins and levels of profitability.

Indicators of banks in Ukraine and Belarus in 2013 will be highly dependent on the development of the macroeconomic situation. The quality of assets, capitalization and stability of deposits from banks are potentially vulnerable to the weakness of the exchange rate and its impact on economic activity. At the same time in both markets banks have flexibility for the recognition of bad loans, and a significant level of foreign and / or state ownership provides some margin of safety in terms of support.

Fitch expects that the new Georgian banks will demonstrate a good performance in 2013, supported by continued growth in the economy and a good level of control. At the same time, a change of government led to some uncertainty about economic policy and performance in the near future, which slightly affects the prospects for the country's banks.

In case of further adverse shocks in the global economy would increase the risk of lower oil prices, which would be negative for economic growth, asset prices and the exchange rate in Russia, Kazakhstan and Azerbaijan and, consequently, for the creditworthiness of banks in these countries. Regulators and banks are likely to cope with the situation, if there is a short-term drop in oil prices / recession, but prolonged weakening would be bad for the credit.

In the case of larger-than-expected depreciation in Ukraine and its potential impact on growth, it would be bad for the banks, as well as the resumption of macroeconomic imbalances in Belarus. In Georgia, the factors of concern would be the deterioration of political stability, deficiencies in policy or increase the risks of external financing. -15D -