The banking systems of Russia and the former Soviet republics are in little danger of a major hit from the eurozone debt crisis because their direct links with eurozone banks are limited, according to a report published by rating agency Standard Poor’s on Monday.
“We believe the current economic struggles of some members of the European Economic and Monetary Union and their banking systems, along with looming tighter capital and liquidity rules for all banks under Basel III, will likely lead some Western European banks to scale back their investment in the form of liquidity or capital abroad,” the rating agency said.
“But most Russian and CIS banks don’t rely heavily on the eurozone for foreign direct investment, which shields them from much of this risk,” said the report, Russian and CIS Banks’ Low Reliance on Eurozone Investment Limits Their Contagion Risk.
“The major source of risk for Russian and CIS banking systems is deterioration of global macroeconomic fundamentals, rather than direct contagion from difficulties at euro area banks,” Standard Poor’s credit analyst Pierre Gautier said in the report.
“If the global economic slowdown weighed on oil and commodities prices or on local currencies and local stock markets for a long time, Russian and CIS banking systems could suffer. Specifically, the ruble and the Moscow stock exchange could be particularly vulnerable because they tend to be volatile in periods of crisis,” he said.
“We believe the direct contagion risk from the eurozone to banking sectors in Russia (BBB/Stable/A-2 foreign currency rating, BBB+/Stable/A-2 local currency rating) and most of the CIS is moderate. Ukraine (B+/Negative/B) stands out as the country whose banking system is the most vulnerable to falling investments from the eurozone,” he added.
“Our base-case scenario assumes an inevitable economic slowdown for Russia and the CIS. But we do not expect it to be a severe enough shock to plunge these economies and the whole banking system into deep trouble,” Gautier said.