Russia's ratings balance a very strong sovereign balance sheet, robust external finances and a credible macroeconomic policy framework against weaker growth prospects than peers, high commodity dependence, weak governance standards and geopolitical tensions.
The imposition of very tough sanctions, especially on large commercial deposit-taking institutions, hampering their ability to service foreign-currency (FC) debt, is therefore unlikely. Other sanctions, including on sovereign debt, could be reasonably mitigated for banks by a combination of their own resources and state support.
Russia will see limited near-term economic gains from higher oil prices because of prudent monetary and fiscal policy settings under the country's improved policy framework, which reduces the impact of oil price moves. Boosting weak medium-term growth prospects is a key challenge for the new government.
Eleven Russian cities will host the World Cup over the next month. Unlike previous large international sporting events, including the Sochi Olympics in 2014, Universiade 2013 in Kazan and the 2014 World Cup in Brazil, Russian regions and cities managed to avoid significant World Cup-related debt increases. The majority of costs were carried by the federal government and private investors.
Most Russian oil producers restored 2017 profitability close to 2014 levels due to a price rebound. The outlier was Gazprom as its 2017 EBITDA significantly declined compared to 2014, partly due to a different tax structure applied on gas and lagging gas price increases.
Very weak asset quality at Kazakh banks means that any clean-up will be gradual, even as regulators step up scrutiny of the sector, Fitch Ratings said at its 12th annual conference on Kazakhstan in Almaty.
The latest US sanctions announced against a number of Russian companies, individuals and a bank on 6 April 2018 are likely to have a severe effect on these companies' operations and financial profiles by curtailing their ability to trade and service their US dollar-denominated debt.
The debt and asset restructuring of International Bank of Azerbaijan (IBA; B-/Stable; ccc/RWE) last year was the most significant recent development in the sector. Nearly all the bank's problem assets were transferred to a state-controlled non-bank entity, its risk-weighted assets contracted and its capital position was restored.
Premiums will have more than doubled over 2016-2017 as hybrid savings products, which offer a mix of guaranteed and non-guaranteed investment returns, attracted customers dissatisfied with falling interest rates on bank deposits.
The companies all generated neutral-to-positive free cash flows in 2017 (after dividends, before M&A), according to their recently released annual results. Developments in their credit quality will largely depend on their ability to preserve financial flexibility, as oil prices are likely to remain volatile.
We get a lot of questions from investors about what recent failures of some large Russian private banks mean for the sector and whether there is a crisis. Our answer is ‘there is no crisis’ and here is why…
An improving consumer environment in Russia should provide support for the country's retailers and consumer goods companies in 2018, Fitch Ratings says. However, any turnaround will be moderate at best and the benefit for local producers could be partially offset by increased competition from imports.
The decision of OPEC, Russia and other oil-producing countries to extend their deal on production cuts reduces the potential for a significant market oversupply in 2018. We believe the extension has already been largely factored into oil prices, which are more likely to stabilise at USD50-60/bbl in the coming years; however, much will depend on the performance of US shale.
The continuing uncertainty over the implementation of Yarovaya law increases the risk that many Russian telecoms may face significant one-off investments leading to a leverage spike in 2018. In our view it is unlikely that the law-related costs will be fully passed on to customers, thus spelling negative implications for the industry's profitability and cash flow generation.