Moody's on Oct. 23 revised the outlook on Russia's banking system to stable from positive, citing limited scope for improvement during the next 12 to 18 months in light of slow economic growth.
As weak macroeconomic conditions are complicating banks' efforts to resolve their legacy problem loans, Moody's expects their problem loan ratio to fall at just under 10% of total gross loans during the next 12 to 18 months, a low ratio in contrast to banking sectors in other emerging markets. However, credit costs are expected to remain steady as Russian banks' problem loans are sufficiently covered by loan loss reserves.
Moody's cut Russia's real GDP growth forecast for 2019 to 1.2% from 1.6% and said the potential for growth in 2020 also remains weak at about 1.5%. An accommodative monetary policy, a relatively steady exchange rate as well as higher government spending will help support the operating environment for banks, the agency added.
Furthermore, Moody's said it expects banks' profitability metrics to remain stable and their funding and liquidity to remain strong, helped by adequate deposits. Lending rates will go further down amid tough competition and the resumption of monetary easing but higher yielding retail loans with higher yields will prop up the banking sector's margins, Moody's noted.