Fitch talks main risks in CIS banking markets

Finance Materials 16 April 2019 12:08 (UTC +04:00)

Baku, Azerbaijan, April 16

By Azad Hasanli - Trend:

Some tightening of supervision is observed across CIS markets, which is a positive development, reads a report by Fitch Ratings “Key Materialized CIS Banking Risks”, Trend reports.

However, given the significant issues in some countries it may take some time to address them, while some risks, such as dollarizaiton of balance sheets, will be very difficult to reduce or mitigate, according to the report.

CIS banking systems have experienced various stresses over the last 12 years, with some significant common causes, the report said.

“Chief among these is mismanagement of foreign currency (FC) risks, such as FC lending to weakly hedged borrowers, an over-reliance on external FC debt and generally high dollarisation of liabilities, and sometimes maintenance of large short open currency positions,” reads the report.

“When in 2014-2015 many regional currencies depreciated sharply, banks in Ukraine, Kazakhstan and Azerbaijan experienced significant worsening of credit losses associated with these exposures, and some failed as a result,” the report said. “This risk is still present, with FC lending particularly high in Azerbaijan (40 percent), Ukraine (48 percent), Belarus (49 percent), Uzbekistan (55 percent), Georgia (56 percent) and Armenia (58 percent).”

Another common source of problems has been poor corporate governance, coupled with weak supervision, which resulted in sizable amounts of state money being required to resolve failed banks in Russia and Kazakhstan, where clean-ups are still ongoing, according to the report.

“In certain cases (eg BTA in Kazakhstan, Privatbank in Ukraine and International Bank of Azerbaijan) authorities have decided to share the burden of supporting the banks with foreign creditors, who as a result incurred significant losses,” reads the report. “For example, we estimate that in BTA alone foreign creditors lost about $13 billion.”