Moody's: Liquidity crisis in smaller extent affects banks of Russia and Ukraine, to greater extent - on banks of Kazakhstan

/REUTERS, October 5, 07/ - Financial institutions in the Commonwealth of Independent States (CIS) could find it difficult to raise new debt or to roll over existing foreign loans in the event of a continued shortage of liquidity and a reassessment of the risks associated with emerging market lending, says Moody's Investors Service in a new Special Comment. Focusing on the key markets in this region, Moody's believes that the impact of the recent financial turmoil on Russian and Ukrainian banks is likely to be moderate, whilst the impact on Kazakh banks is likely to be more significant. "The financial turmoil caused by the problems in the US sub-prime mortgage market has now spread to the emerging markets, raising fears of a liquidity or even credit crunch. In this context, financial institutions in the developing world, although not themselves exposed to the troubled US credit markets, at least directly, have become affected alongside their western peers," explains Yaroslav Sovgyra, a Moody's Vice-President/Senior Analyst and co-author of the report. This follows a two-year period in which many emerging economies have enjoyed the favour of global investors, benefiting from the excess liquidity in the world market. Moody's Special Comment - entitled "CIS Banking: Impact of the Global Liquidity Crunch" - assesses the impact of current market conditions on the CIS banking systems, focusing in particular on Russian, Ukrainian and Kazakh banks. In the rating agency's opinion, the overall liquidity situation of the Russian banking system is relatively strong and refinancing risk for Russian banks is fairly modest. In addition, the state-controlled banks, which account for a large proportion of the banking system's external debt, could rely on liquidity support from the government. "We note, however, that in case of prolonged contraction of foreign funding the situation may worsen in 2008 when the total amount of repayments by Russian banks remains at a similar level. This could force those banks which have been heavily reliant on market borrowings, to drastically curb loan portfolio growth and even change their business strategy in many areas," Mr Sovgyra cautions. Moody's sees no immediate threats for the Ukrainian banking system. Not only are the debt maturities of banks structured such that there are no significant repayments falling due by the end of 2007 or in 2008, but also the majority of the intrinsically weak private- sector banks that have outstanding loans from foreign banks and Eurobonds have already been acquired or are in the process of being acquired by foreign shareholders and could therefore rely on liquidity support from financially stronger groups. In addition, Moody's would expect to see some proactive steps on the part of the regulator should system-wide liquidity problems emerge and persist. Kazakhstan is undoubtedly the country in the CIS region that is set to feel the impact of the liquidity crisis on the world market the most. According to Moody's estimates, the current total of Kazakh banks' international borrowing is around USD40 billion, accounting for over one half of their total non-equity funding. "We are of the view that - given the importance of the banking system for the country's economy and political stability - Kazakh banks are likely to receive support from the Kazakh financial authorities and/or by banks' shareholders in a stress situation. However, a prolonged tightening could have significant implications on Kazakh banks through negative effects on macroeconomic development. The lack of access to international markets will slow Kazakh banks' operations and might put pressure on margins and growth rates of Kazakh banks in the longer term." Mr Sovgyra explains. Concerns over the high indebtedness and sustainability of the Kazakh banks are also associated with the rapid growth in their loan portfolios, which are therefore unseasoned and further weighed down by an increasing share of unsecured consumer loans and excessive exposure to the real estate and construction sectors. NOTE TO JOURNALISTS ONLY: For a copy of these reports, please contact EMEA Press Information in London +44-20-7772-5456; New York Press Information +1-212-553-0376; Juan Pablo Soriano in Madrid +34-91-310- 1454; Alex Cataldo in Milan +39-02-914-81-100; Eric de Bodard in Paris +331-5330-1076; Detlef Scholz in Frankfurt +49-69-707-30-700; Mardig Haladjian in Limassol +357-25-586-586; Alex Sazhin in Moscow +7495-641- 1881; Petr Vins in Prague +4202 2422 2929; Tokyo Press Information +813- 5408-4110; Hilary Parkes in Toronto +1-416-214-1635; Hong Kong Press Information +852-2916-1150; Sophie Davidson in Sydney +612 9270 8185; Luiz Tess in Sao Paulo +5511-3043-7300; Alberto Jones Tamayo in Mexico City +5255-1253-5700; Daniel Ruas in Buenos Aires +54 11-4816-2332 ext. 105; Craig Jamieson in Johannesburg +27-11-217-5470; Philipp Lotter in Dubai +971 4 365 0284; or visit our web site at www.moodys.com London Reynold R. Leegerstee Managing Director Financial Institutions Group Moody's Investors Service Ltd. JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 London Yaroslav Sovgyra Vice President - Senior Analyst Financial Institutions Group Moody's Investors Service Ltd. JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 [2007-10-08]