Russian banks continue advancing amid remaining risks, report says - S&P

/Standard & Poor's, Paris, September 12, 07/ - Banks are gradually making progress in addressing the high challenges faced by Russia's banking system, but risks still persist, Standard & Poor's Ratings Services noted in a report published yesterday, entitled "Bank Industry Risk Analysis: Russian Banks Continue To Improve, But Still Burdened By Structural Vulnerabilities." "While structural enhancements in the Russian banking industry are evident, most improvements remain cyclical - fueled by favorable economic, political, and industry conditions - and therefore vulnerable to shocks in these areas," said Standard & Poor's credit analyst Ekaterina Trofimova. Standard & Poor's will hold a teleconference on Thursday, Sept. 13, 2007, to discuss the prospects for banks in Russia, Kazakhstan, and Ukraine, especially in light of the difficult conditions currently prevailing in the global credit markets. The call will begin at: - 5:00 p.m. Moscow time; - 3:00 p.m. Central European Time; - 2:00 p.m. London time; and - 9:00 a.m. Eastern Time. See section "Teleconference Information" below for access details. The main benefits derived by Russian banks from the improving macroeconomic environment stem from the gradual strengthening of Russian industrial companies; ample liquidity in the economy; and stronger private consumption and wealth. For the banking sector these factors have led to lower credit loss charges, better profitability, and growing business diversification. Despite the improvement, the banking industry country risk in Russia is still higher than in comparable markets due to the country's weak legal and supervisory framework, a lack of transparency with respect to bank and corporate ownership, and the high - albeit gradually reducing - single-party concentrations in bank lending, funding, and revenues. A look at individual banks shows that advances in the strengthening of their commercial and credit profiles vary widely, explaining a growing differentiation in ratings. Russia's long-needed banking reform might provide a strong rating uplift and fresh development impetus for Russian banks, but progress on bank reform is still hesitant, due to a lack of political willingness to tackle major weaknesses and opposition from parties with vested interests. Having passed through several shocks since its foundation in the late 1980s, the banking system is still prone to panic-driven periods of illiquidity. The liquidity tension in the second half of August 2007 highlighted Russian banks' vulnerability to capital outflows and unfavorable global conjuncture, increasingly accentuated by their growing international indebtedness and reliance on international investor sentiment. Although the situation somewhat eased in early September 2007, new liquidity shortages could appear in the Russian banking industry in the coming months, the depth and effects of which will largely depend on availability of liquidity support from the Central Bank of Russia and liquidity management of individual banks, some of which have recently been more conservative in this area. Although near-term foreign debt refinancing needs of Russian banks look manageable, difficult market conditions could constrain the pace of near- term business and revenue growth, but are unlikely to reverse a longer term positive trend. For international syndicated and Eurobond borrowings, which represent the core part of Russian banks' international indebtedness and are most subject to refinancing and repayment risk, we estimate the refinancing needs of Russian banks at below $5 billion for the remaining four months of 2007 and below $20 billion (subject to any new borrowings) for 2008. Financial market performance, liquidity sufficiency, and interest rate and currency risks will remain areas of vulnerability for Russian banks in the next few months, with the coming parliamentary and presidential elections likely to increase the tension. We already factor these vulnerabilities into the current ratings on Russian banks. "We do not expect any negative rating actions unless these vulnerabilities start to affect banks' fundamentals, and we are continuing to monitor the situation carefully," said Ms. Trofimova. Our credit outlook for Russian banks is stable, with some medium-term upward rating potential, although this is from a risky average bank rating of B+', among the lowest in the world. Future rating upgrades will depend on the extent of efforts by individual banks to improve their financial and commercial profiles and tighten their risk-management controls. Teleconference Information Standard & Poor's will hold a teleconference on Thursday, Sept. 13, 2007, to discuss the prospects for banks in Russia, Kazakhstan, and Ukraine, especially in light of the difficult conditions currently prevailing in the global credit markets. The call will begin at: - 5:00 p.m. Moscow time; - 3:00 p.m. Central European time; - 2:00 p.m. London time; and - 9:00 a.m. New York time. The call will be hosted by John Gibling, Director and Head of EEMEA Bank Ratings. Also participating will be senior analysts Ekaterina Trofimova, Financial Institutions, and Frank Gill, Sovereign Ratings. They will be joined by Magar Kouyoumdjian and Eugene Tarzimanov, both from Financial Institutions Ratings, to address any questions that you may have in the Q&A session. To participate in the call, please dial: - U.K. local call: 0845 146 2002 - U.S. toll-free number: (1) 866 389 9776 - International dial in: (44) 1452 569 114 The title of the teleconference is "Prospects For Russian, Kazakh, And Ukrainian Banks: Navigating Through The Current Global Credit Squeeze." The teleconference will begin promptly at the time indicated. Please dial in at least 15 minutes before the scheduled start to complete the pre-call registration process. If the number you dial is busy, please call one of the other numbers. There is no charge to participate other than long-distance telephone charges, if applicable. Participants will be asked to provide their name, company affiliation, and fax number or e-mail address. The entire call will last approximately 60 minutes. The call will also be available live in "listen-only" mode from the home page of Standard & Poor's Web site for listeners worldwide with PCs equipped with the Real PlayerЩ software, sound card, and speakers. Point your web browser at www.standardandpoors.com and follow the link for "Events." Recorded replays of the call will also be made available about one hour after the call concludes. To listen to a replay of the call, please dial: - International replay: (44) 1452 55 00 00, access code: 16488405# - U.K. local call replay: 0845 245 5205, access code: 16488405# - U.S. toll-free replay: (1) 866 247 4222, access code: 16488405# If you have any questions about the teleconference, please contact Fleur Hollis at (44) 20-7176-7212 or via e-mail: Fleur_Hollis@standardandpoors.com Primary Credit Analyst: Ekaterina Trofimova, Paris, (33) 1-4420-6786; ekaterina_trofimova@standardandpoors.com Secondary Credit Analyst: John Gibling, London, (44) 20-7176-7209; john_gibling@standardandpoors.com Eugene Tarzimanov, Moscow, (7) 495-783-4071; eugene_tarzimanov@standardandpoors.com Elena Romanova, Moscow, (7) 495-783-40-91; elena_romanova@standardandpoors.com Media Contact: Ekaterina Novikova, Moscow, (7) 495-783-4017; ekaterina_novikova@standardandpoors.com Additional Contact: Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com [2007-09-12]