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Fitch sees Russian banks reducing reliance on state support

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Fitch sees Russian banks reducing reliance on state support

FitchRatings said April 28 that Russia's state banks, following theirrecapitalization in 2015, will be able to withstand two or three years ofcurrent stress levels without additional capital support.

Statelenders were the main beneficiaries of Russia's recent 900 billion-rublerecapitalization program, with the exception of , which did notrequire support. Fitch estimates that since 2011, Russia's Depository InsuranceAgency, the central bank and National Wealth Fund have spent 1.7 trillionrubles to recapitalize the local banking sector, with the DIA also spending 828billion rubles by the end of 2015 on deposit compensations for customers offailed lenders.

Therating agency noted that the reliance of Russian lenders on liquidity supporthas been easing, attributing the trend to the current operating environment,which albeit difficult, is now more stable.

Rublefinancing from the central bank remains high, Fitch noted, noting, however,that it fell to 2.2 trillion rubles at the end of February from 4.6 trillionrubles at June 30, 2015. The value of foreign currency financing provided bythe regulator under its $50 billion funding limit dropped to $16.5 billion atthe end of the first quarter from $30 billion at the end of June 2015 due to alower demand for foreign currencies and an increase in the central bank's forexrepo rate.  

Fitchalso noted that most relief measures introduced by the central bank to support the bankingsystem at the end of 2014 have now either been withdrawn or expired. The agencyalso noted that restructured loans and Ukraine-related exposures are stillexempt from provisioning.

Withthe proportion of restructured loans in the banking sector ranging in the lowerdouble digits, asset quality problems are significantly understated in theRussian banking sector, Fitch said. "However, banks will likely recognizeunder-reserved loans gradually, by 3% or 4% each year, so that they could beprovisioned out of pre-impairment profits without hitting capital," theagency added.

As of April 28, US$1 wasequivalent to 64.57 Russian rubles.