As long as Urals price remains around $80 per barrel, liquidity in oil-producing countries' banking sectors unlikely to suffer

As long as Urals price remains around $80 per barrel, liquidity in oil-producing countries' banking sectors unlikely to suffer

Azerbaijan, Baku, July 30 / Trend, I.Khalilova /

As long as the Urals price remains around $80 per barrel, liquidity in oil-producing countries' banking sectors is unlikely to suffer, Standard & Poor's Ratings Services believes.

On Monday Standard & Poor's announced a report, which considers reliance of Russian and other CIS countries' banking systems from foreign investment inflows. The CIS countries the report covers are Azerbaijan, Belarus, Kazakhstan, Ukraine and Uzbekistan. Georgia is not member of the CIS since 2008, however, for comparison this country is also covered by the report.

"Any prolonged difficulties in the eurozone would likely contribute to a global economic slowdown, which, in turn, might have a negative impact on oil prices or local stock markets. The recent drop in the price of Urals crude oil to $90 per barrel at the end of June 2012 from $120 per barrel three months before is evidence of this," S&P experts believe.

They believe that a global economic slowdown could also indirectly heighten the volatility of the stock markets and weaken certain domestic currencies, most importantly the ruble.

"We also note that some large banks in Russia and Kazakhstan are using debt capital markets as a source of funding. That means any growing economic pressure on these two countries could impair these largest banking groups' access to international capital markets," the report says.

According to S&P, since the beginning of the global financial crisis in 2008, Russian banks have increased their investments in CIS banking sectors. These flows, which are not new but have become more important, are compensating for the stagnation, or even decline, of FDI from Western European banks.

"We believe external factors, like the price of oil and commodities, could have a big influence on the sustainability of these Russian FDI flows. As long as Urals crude oil prices remain at or above $80 per barrel, a level we consider to be high, some of the cash the large Russian corporates have accumulated will continue to be replaced in the banking sector, which therefore benefits from ample funding sources, which can be used to some extent for expansion into neighboring countries," S&P experts believe.

Kazakhstan provides is a good example of how Russian banks are taking advantage of both the low presence of Western European banks and the high level of deleveraging at large local banks to significantly increase their local market shares. Russia's biggest lenders, Sberbank (not rated), VTB Bank, and OJSC Alfa-Bank (BB/Positive/B) used to have very small local franchises in Kazakhstan, mainly serving corporate customers. The assets of Sberbank's local affiliate in Kazakhstan increased from Kazakh tenge (KZT)98 billion ($650 million) in 2008 to KZT491 billion in 2011, and it is now the seventh-largest bank in the country.

Russian banks are using their stronger funding liquidity profiles compared with Kazakh banks to rapidly gain market share in Kakazhstan. Their strategy involves offering attractive rates on deposits and loans to Kazakh customers to grow volumes rapidly, and then adjusting pricing to competitors' levels once the franchise is strong enough.

The Ukrainian subsidiaries of Sberbank, Alfa Bank, and VTB have also expanded rapidly in a market where Western European banks are no longer actively looking to grow because their subsidiaries have had huge losses there since 2009. In Belarus, on the other hand, Russian banks have historically been practically the only foreign investors in the banking system.

Russian banks' outward FDI totaled $7 billion in 2011, four times higher than in 2006, and the CIS was a significant contributor to the increase.

"Although we expect this trend to persist in 2012 and 2013, the volatility of oil prices, and therefore the cash positions of large Russian banks, will continue to drive FDI flows to neighboring banking sectors," the report says.

S&P continues to believe that global macroeconomic imbalances are a bigger threat to Russian and CIS banking sectors that the difficulties of some eurozone members and their banking systems. An abrupt economic slowdown, which would imply falling oil and commodities prices and volatility of certain currencies, may affect the creditworthiness of Russia and the CIS' banking systems, if they prove to be significant and long lasting.

We expect Russian and CIS economies to continue to grow in 2012 and 2013 after the abrupt declines in GDP in 2009 and slight recovery in 2010.

"Nevertheless, we expect the pace of economic expansion to be slower than during the booming pre-2008 years. For example, we expect future real growth rates in Russia to be lower than the 5.5% annual average over the past decade. This is because of Russia's heavy reliance on commodities in its export mix, its internationally uncompetitive manufacturing sector, and the slow pace of economic reform. Until the region's non-export industries become more efficient and competitive with those in the rest of the world, the performance of the Russian economy is likely to remain highly correlated, and therefore vulnerable, to hydrocarbons prices. However, our base-case scenario anticipates real GDP growth at 4.1% for Russia in 2012, compared with about 6% for Kazakhstan and 3% for Azerbaijan," the report says.

However, S&P base-case scenario anticipates real GDP growth at 4.1% for Russia in 2012, compared with about 6% for Kazakhstan and 3% for Azerbaijan.

"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," S&P experts believe.

Subscribe to Trend in Google News! Subscribe
Azerbaijani State Border Service to purchase building materials via tender
Azerbaijani State Border Service to purchase building materials via tender
Кazakh Electricity Grid Operating Company opens tender to buy spares for vehicles
Кazakh Electricity Grid Operating Company opens tender to buy spares for vehicles
Turkmenbashi refinery opens tender to purchase necessary equipment
Turkmenbashi refinery opens tender to purchase necessary equipment
Loading Bars
Central Bank of Turkey makes decision on key rate
President Ilham Aliyev receives Advisor to the French President's Cabinet and EU Special Representative for South Caucasus
January 20 tragedy laid foundation for Azerbaijanis' struggle to restore their statehood and independence
Azerbaijan shares data on number of vaccinated citizens
Price indexes of industrial, trade sectors at Uzbek stock exchange rise
Azerbaijan confirms 1,186 more COVID-19 cases, 582 recoveries
Turkish VP tweets about anniversary of Azerbaijan's January 20 tragedy
Kazakhstan talks persons not eligible for support on loan deferrals, write-offs
Uzbekistan’s Bukhara oil refinery discloses volume of its production in 2021
Turkmen enterprise releases its first tablets and smartphones
Azerbaijan is beneficiary of recovery trend in hydrocarbon market - Gazprombank
Technical specifications of Azerbaijan’s Khizi-Absheron power plant revealed
Uzbek Central Bank makes decision on its main rate
Azerbaijan boosts oil exports to Georgia
State Statistics Committee discloses cost of machinery, equipment produced in Azerbaijan
Cars re-export from Georgia to Azerbaijan increases
Uzbekistan’s gas chemical complex reveals volume of its products for 2021
Kazakhstan unveils value of vehicles insurance over 11M2021
Kazakhstan reports increase in monetary base value
Kazakhstan's first president to retain right to speak at parliament and government
Azerbaijani Executive Power in Baku opens tender for purchase of truck spare parts
Tesla Berlin factory to elect works council on Feb 28
Kazakhstan to introduce two alternative ways to repay deferred payments
Introducing hydrogen as energy carrier can raise energy security risks
Impact of large-scale protests in Kazakhstan yet to play out - WoodMac
Azerbaijan's State Agency for Use of Mineral Resources opens tender on survey services
India’s cumulative COVID-19 vaccination coverage exceeds 158.88 Cr
PM Modi to host first ever India-Central Asia Summit in virtual format on Jan 27
Indian NSE world’s largest derivatives exchange for 3rd straight year
Artel launches Innovative Educational Center in Tashkent
Uzbekistan shares data on industrial production in 2021
Events held in Azerbaijani army, dedicated to January 20 tragedy (PHOTO)
Guides to accompany passengers of bus trips to Azerbaijan’s liberated Aghdam, Shusha cities
Can hydrogen market be cartelized?
Azerbaijani NBCO eyes boosting car loan portfolio
Memory of January 20 tragedy victims honored in Azerbaijan's Shusha (VIDEO)
Indian economic recovery yet to attain durability: Icra
Russia records another 38,850 coronavirus cases, highest daily number since Nov 13
PM to launch India-assisted projects with Mauritius counterpart Jugnauth today
Rapid growth of hydrogen to underpin rising demand for nickel, zirconium
Azerbaijani State Border Service to purchase building materials via tender
Iran’s CBI discloses data on balance of bank loans
Uzbek Statistics Committee reveals amount of construction work done in 2021
Azerbaijan's minister of health talks quarantine regime
Turkmen garment factory ramps up production
Iran reveals COVID-19 data for January 20
IEA expects Azerbaijan to increase oil output in 2022
Turkish MoD shares publication on anniversary of January 20 tragedy in Azerbaijan
Work related to Armenia's environmental crimes in Azerbaijan's Karabakh in progress - ministry
Iran’s Bahar Azadi gold coin price continues to rise
Turkish, Armenian special reps to discuss confidence-building measures - FM
IEA evaluates Azerbaijan’s OPEC+ compliance
Kazakhstan crude and condensate production estimated to go up in 2022
European Hydrogen Backbone joined by six more companies
Swiss Expo inks solar power purchase agreement in Poland
Кazakh Electricity Grid Operating Company opens tender to buy spares for vehicles
Turkmenbashi refinery opens tender to purchase necessary equipment
EBRD to allocate loan for Turkey’s renewable energy sector
Azerbaijan develops action plan to provide liberated areas with internet
Georgia shares data on trade turnover with Azerbaijan
Russian MFA talks about expansion of transport corridors within GUAM
Recognise ‘Hinduphobia’ and violence against Buddhists, Sikhs too: Indian envoy to U.N.
Work related to Armenian crimes against Azerbaijanis continues - Prosecutor General
Momentum in India's favour, need to prevail over COVID-19: Deloitte CEO on economic development
Central Bank of Iran shares data on exchange of bank checks countrywide
Proud to hold TEKNOFEST int'l aviation, space, technology festival in Azerbaijan - Turkish Baykar Makina
EU special rep for South Caucasus to visit Azerbaijan
Iran boasts potential to vastly increase exports to Russia
India extends suspension on international flights till February 28
Kazakh Gas Processing Plant opens tender to buy electric engines
Companies from UAE, Netherlands to build solar photovoltaic stations in Uzbekistan
Israel signs $3.4 bln submarines deal with Germany's Thyssenkrupp
Azerbaijan eyes holding clinical trials of Turkovac COVID-19 vaccine soon
Turkmen state concern to purchase material and technical resources via tender
Georgia names main goods in domestic exports in 2021
Azerbaijani minister talks potential omicron infection rate among local COVID-19 patients
Azerbaijani people honor memory of victims of January 20 tragedy (PHOTO/VIDEO)
Iranian banks issue big loans in services sector
UN Resident Coordinator in Azerbaijan expresses condolences in connection with January 20 tragedy
Ambassador of Kazakhstan to Azerbaijan honors memory of victims of January 20 tragedy (PHOTO)
Uzbek association signs agreement with Russian enterprises to develop textile industry
Inflation accelerating worldwide: How Azerbaijan responds?
Azerbaijan honors memory of martyrs of January 20 tragedy by minute of silence (PHOTO/VIDEO)
Turkish embassy in Azerbaijan shares publication on 32nd anniversary of January 20 tragedy
Turkmenistan's TML eyes co-op with Ukraine's Smart Maritime Group
Uzbekistan to strengthen cooperation with Saudi company in energy field
Leadership of Azerbaijani MoD visits Alley of Martyrs (PHOTO)
Georgia’s revenues from tourism to surge in 2022 – Galt & Taggart
Iran provides several loans in trade sector
January 20 events strengthened resolve of Azerbaijani people for independence - aide to president
Embassy of Kazakhstan in Azerbaijan issues statement on 32nd anniversary of January 20 tragedy
Georgia publishes COVID-19 data for January 20
This irresponsible behavior of French FM also undermines bilateral international obligations of France - Azerbaijani MP
Uzbek Thermal Power Plants JSC to implement major investment projects
Kazakhstan increases production and import of kerosene for 10M2021
Iran reaches significant agreements with Russia in energy sector – minister
Valiant Azerbaijani people stood up for independence on January 20, 1990 - Turkish president's adviser
Loan portfolio of Azerbaijani non-bank credit organization more than doubles
Azerbaijan Transport Agency talks number of passengers on bus trips to liberated areas
Armenia must properly assess new geopolitical realities in region – Aide to Azerbaijani President
All news