Sberbank and VTB could post losses on up to 27 percent of their loans, Moody’s ratings agency said, warning the banks against cutting their bad debt provisions.
Under the worst-case scenario, state-run VTB alone would require a recapitalization of about 150 billion rubles ($5.23 billion) to keep its capital adequacy ratio at 10 percent, the international agency said in a report.
“Based on our stress tests, we believe that the expected loss on VTB’s loan book is likely to be around 16 [percent] under our base-case scenario, and 27 [percent] in a worst-case scenario,” it said. The base case should be manageable for VTB and will be absorbed by available capital without breaching the 10 percent minimum regulatory capital adequacy ratio, the agency said.
For Sberbank, losses are estimated at 15.5 percent and 26.5 percent by mid-2010, respectively, under the two scenarios, Yevgeny Tarzimanov, an analyst at Moody’s, said Friday.
The probability of the worst-case scenario is very low — it will only occur if the economy collapses and the ruble devalues significantly, Tarzimanov said. “It is very difficult to estimate the banks’ implied losses as a huge number of loans are being restructured,” he said.
Banks are struggling with losses as bad loans rise as the economy has been hit by the first contraction in a decade.
Moody’s view comes as a contradiction to the most recent forecasts of the Central Bank Chairman Sergei Ignatyev, who believes that the share of nonperforming loans in portfolios could start falling as early as January 2010.
“The trend in asset quality is negative, as Moody’s sees limited signs of economic recovery in Russia,” the agency said.
Banks should refrain from cutting provisions against bad debts, despite the recent signs that the worst of the crisis is over, the Central Bank has said.
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