LAST MONTH ALFA Bank, one of Russia’s biggest banks and part of oligarch Mikhail Fridman’s empire, saw its long-term credit rating downgraded to B+ from BB– by Standard & Poor’s.
It was not the only Russian bank whose ratings were revised but since it is one of the country’s leading financial institutions the move was a timely reminder of the frailties of Russia’s banking industry, which has been especially vulnerable to the financial and economic crisis.
Russia’s banks first came under siege in August 2007 after the international capital markets, on which they were dependent for funding, seized up. Although support from the central bank has eased fears about liquidity provisions, attention has now turned to the increase in non-performing loans in the banking sector. The central bank reckons that bad loans could hit 12% by the end of the year, compared with about 3% at the beginning of 2008, wiping out all bank profits in 2009. Fitch reckons that the ratio could reach 40% of all credit portfolios if things turn out particularly badly. The ratings agency reckons that the banks might need $80 billion in extra capital.
Although Alfa Bank is better placed than most Russian banks to withstand further shocks it is far from immune to them.