Fitch on Russia Conference Highlights

Fitch Ratings yesterday hosted its Fitch on Russia conference in New York, during which Fitch's key analysts participated in an hour-long panel discussion on the challenges facing Russia's banks, corporates and sovereign.

Highlights included:

Sovereign Outlook - Paul Rawkins, Senior Director, Head of Emerging European Sovereign Ratings:

'Fitch downgraded Russia to 'BBB-'/Negative Outlook on 9 January. The downgrade reflected Russia's deteriorating growth outlook and the impact on the financial system set against the background of falling oil prices and continuing sanctions,"

'Russia retains some notable strengths: public debt is still low, sovereign net foreign assets are still appreciable and the policy framework has proved to be relatively robust. Still, the longer Russia's current predicament continues, the greater the risk of private sector external liabilities migrating to the sovereign balance sheet and eroding the sovereign's strong starting position.'

Corporate Outlook - Maxim Edelson, Senior Director:

'Russian corporate liquidity is weakening as a result of significantly lower commodity prices, a sharply weaker rouble, high domestic interest rates and inability to issue debt or equity abroad.'

'Russian corporates obtain some liquidity from domestic banks or the sovereign wealth funds, but the higher-rated state owned corporations are squeezing out smaller, privately owned ones. We are likely to see debt restructurings and defaults among the lower end of the Russian corporate sector.'

'Overall, 2015 and 2016 are going to be difficult for Russian corporates as the external macro factors including commodity prices, rouble exchange rates and capital markets will play a more prominent role in determining their credit quality than company-specific factors. Low-levered exporters are likely to withstand the unfavorable macro conditions better than the rest.'

Banks Outlook - Alexander Danilov, Senior Director:

'Most Russian banks are on Negative Outlook, as we expect recession, sanctions, weaker rouble, higher inflation and significantly increased funding costs to pressure their credit profiles. Asset quality is likely to deteriorate across the board due to economic slowdown and rouble devaluation. About 20% of sector loans are in foreign currencies, of which half is likely issued to unhedged borrowers.'

'Liquidity is getting tougher due to lower customer saving rates, as companies need money for external debt repayments and capex, while people have been buying dollars and increased spending in response to significant rouble devaluation. As a result, banks' reliance on sovereign funding, mainly Central Bank repo, has grown to 15% of sector liabilities at end-2014 and about 20% for state banks, and will likely increase further. In 2H14, the Central Bank introduced FX repo for up to USD50bn to alleviate potential deficit of FX liquidity on the market and said it would be prepared to provide unsecured funding in emergency situations.'

'Profitability will suffer due to significantly increased funding costs driven by the Central Bank's rate hike and repricing of deposits, while passing on this incremental cost to the borrowers may lead to increased credit losses.'

'Capitalisation is moderate, offering limited protection against potential loan impairment. Positively, the authorities devised a set of recap measures totaling over RUB2trn, which, we believe, could allow the banks to withstand a crisis similar to that seen in 2008-2009, although more capital support may be needed in case of a prolonged stress.'

Additional details about the Fitch on Russia conference can be found at:

http://fitchratings.nyws.com/Page.asp?ID=3348

Media Relations: Elizabeth Fogerty, New York, Tel: [phone], Email: [e-mail]; Alyssa Castelli, Tel: [phone], Email: [e-mail]

Additional information is available at 'www.fitchratings.com'.

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