S&P degraded the forecast for Russian banks
According to the results of this year, the profits of Russian credit institutions will decrease by at least 50% because of the coronavirus, as well as the fall in oil prices, which in turn will put pressure on the development of the country’s economy. These conclusions were made by researchers of the S&P Global Ratings company after studying the activities of Russian banks in a recession. In 2019, the Russian banking sector showed the maximum profit of 1.7 trillion rubles.
The profitability decrease of credit institutions will also be affected by the volatility of the financial markets, as well as the slowdown in the development of lending. Among other things, falling asset quality will be a negative factor. The number of problem loans will almost double.
In its research, the agency was guided by the assumption that the peak of the coronavirus spread will take place in the middle of the year. According to the company’s forecasts, the development of world GDP this year will amount to only 0.4%, while for the Russian financial system S&P predicted a 0.8% plummet.
Other findings from the S&P report:
- The fall in the ruble will raise food prices, as well as worsen the ability of Russians to pay obligations to banks. This will primarily affect low-income citizens and unsecured retail lending sector.
- This year, the speed of issuing loans will decrease, and the costs of credit companies for organizing reserves will grow. As a result, the financial profit of banks will be in the area of zero.
- The increase in the loan portfolios of companies in 2020 will amount to only 5%. To prevent deterioration in asset quality, banks will be forced to reduce the number of approved loan applications and increase requirements for borrowers.
- Banks may be forced to restructure loans in order to partially support the affected companies and households.
- As a result of the national currency volatility, an outflow of deposits is possible due to the panic amid the coronavirus. However, the regulator will be able to support companies if necessary. Analysts are confident that state support will be the main factor in stabilizing the banking sector.
- The anti-crisis measures for providing credit vacations imposed by the government will force banks to provide support to affected organizations. However, for this reason, they will lose part of the cash flow. In this case, the anti-crisis measures from the Central Bank should reduce the pressure on the results of companies’ capitalization.
- Credit organizations will find themselves in a new stressful situation due to the self-isolation regime, which will lead to an increase in the load on IT systems. As a result, the quality of customer service will deteriorate.
- The new tax on deposits will not affect the liquidity of banks, but will reduce the income of most depositors.