IHS Banking Risk has warned that some of Russia’s biggest banks could require help from the government to “weather financial difficulties” caused by international sanctions imposed on the country.
IHS senior economist Antonio Timoner-Salva points out that Russian’s leading state-owned banks have already shown signs of “fast balance-sheet deterioration” as well as ”rising expenses to cover mounting loses” in their first half results for 2014 which he believes are due to the current “adverse economic environment.”
Moves by both the US and EU to up trade sanctions against Russia in July is likely to create more financial stress amongst these state-owned banks, according to Timoner-Salva, while the Russian government may also have to step in to provide support.
He says: “The squeeze on foreign financing resulting from the sanctions introduced in late July will further compress financial margins, undermine liquidity conditions, and add more pressure on already falling profitability.
“More Russian banks, essentially those controlled by the government, are likely to receive state aid to weather these financial difficulties.”
IHS has also separately downgraded its outlook for South Africa’s banking sector to negative following the bailout of African Bank, known as Abil, by the South African Reserve Bank.
Although IHS senior economist Alyssa Grzelak does not think the bailout will trigger a wider banking crisis in the country, she argues that the bailout should nevertheless be “watched closely.”
“Although we do not see Abil’s bailout as indicative of broader banking sector problems given its unique business model and concentrated loan book, progress with the South African Reserve Bank (SARB)’s planned rescue of the bank should be watched closely,” she says.
“The bank’s rescue immediately resulted in volatility of bank stocks on the Johannesburg Stock Exchange, and additional fluctuations and higher funding costs would not be unexpected.”