Moody's Investors Service's outlook for Russia's banking system has been revised to stable from negative, given emerging signs of the country's economic recovery which will likely benefit its banks.
"Slow economic recovery and stabilisation of macroeconomic indicators in Russia will support the operating environment for Russian banks. We therefore expect improvements in banks' profitability and capital retention," the Vice President, Senior Credit Officer at Moody's, Irakli Pipia, said.
The rating agency expects the Russian economy to contract by only 1% this year, with a stabilisation in oil prices and strong government stimulus fuelling prospects for positive growth in 2017, as noted in September 2016.
Russian banks are therefore likely to post positive net profitability in 2016 and show a gradual improvement over the outlook horizon. However, net interest margins remain below historic averages, at just under 4% in H1 2016. In addition, provisioning expenses will remain elevated given the need to improve nonperforming loan coverage.
