Fitch revises Russia outlook to stable

“The revision of Russia’s Outlook to Stable reflects our greater confidence in economic and financial stability in Russia,” said Edward Parker, Head of Emerging Europe in Fitch’s Sovereigns team. “The rebound in oil prices, recovery in net private sector capital inflows and economic activity, decline in inflation, reduction in downside risks in the banking sector and a lower than expected 2009 budget deficit outturn underpins our decision to revise Russia’s rating Outlook to Stable.”
Fitch believes downside risks to the banking sector have lessened somewhat due to the stabilisation of the economy and banks’ increasing loss absorption capacity. However, the agency remains concerned over asset quality, and expects total problem loans (non-performing loans plus restructured loans), to peak at around 25%, up from 19% in October 2009. Fitch also notes the uncertainty over banks’ capacity to extend sufficient credit to support recovery: private sector credit contracted 4.7% in the 12-months to November 2009 in real terms.
Data released by the Central Bank of Russia (CBR) last week show a marked improvement in net private sector inflows of USD11.6bn in Q409, after a net outflow of USD64bn between Q109-Q309.