Financial Communique » banking sector

Moody’s decreased the forecast for the Russian banking sector

Viliyana Filipova — Wed, 26 Oct 2011 11:50:29 +0000

The International rating agency Moody’s today lowered its forecast for the Russian banking system as a whole to “negative” from “stable”, said in a statement posted on the official website of the agency.
“Changing the outlook for the Russian banking system to” negative “reflects concerns that weakness in the global economy and volatility in financial markets will weaken the operational situation in Russia, reflecting adversely on the banks by systemic liquidity squeeze, slower credit growth and depressed asset quality”, was send in a press communique. The report reflects the agency’s expectations for the underlying credit conditions in the banking sector for the next 12-18 months. From Moody’s predicts that because of weak economic recovery growth of real gross domestic product of Russia will slow to 2.8% in 2012 from this year’s expected 3.8%. The Russian economic growth depends mainly on oil prices, which increases the risk that global demand for energy may further affect the operational environment for Russian banks in the forecast period.
“Volatility in global financial markets, limited access to common funding continued rapid movement of capital and the pressure on the ruble has led to pressure on liquidity in the Russian banking system”, said Eugene Tarzimanov, vice president of Moody’s.
“We expect this to continue and lead to slower credit growth, leading to reduced access to credit for the recipients, as banks increase interest rates and tighten conditions further. This will further lead to suppressed growth and an increase in reserves to cover bad loans”, he added.
The government support remains a key factor for creditors of Russian banks and we expect this to be no change noted by Moody’s, it does not fail to emphasize that the Russian Central Bank and Ministry of Finance of the country have already begun to support liquidity in response a deteriorating environment.
“We believe that this support is likely to increase, but there is no assurance that it will be available for medium and small banks in the private sector, if you need it”, says Tarzimanov. Despite the negative outlook for the Russian banking system, the individual ratings of 91% of banks that Moody’s places have a stable outlook, wrote in the agency.

The regulators want a global standard for risk-weighted assets

Viliyana Filipova — Tue, 03 May 2011 19:34:28 +0000

The banking regulators insist on a new international standard for credit risk assessment, which would ensure that efforts to strengthen the global banking system will not fall prey to the weaknesses caused by disparities in national standards. The British regulators are calling for reform in how to calculate risk-weighted assets (Risk-Weighted Assets, RWA). The RWA denominator used as a key indicator of banks’ capital position – the ratio of tier 1, the numerator is the main capital. The international regulators by the Basel Committee on Banking Supervision adopted reforms, known as Basel III, in order to harmonize the definition of fixed capital. However, almost nothing was done for the standardization of RWA.
“This is an extremely important issue,” said Lord Turner, chairman of the British regulator Financial Services Authority. “We’ve enough time in the past two years to standardize the definition of capital as the numerator in the ratio of capital adequacy. Now we must look deeper consideration of the denominator, assessing whether the calculation of risk weighted assets was comparable in different banks in different countries.”
The incorrect calculation of risk-weighted assets may greatly distort capital ratios and potentially undermine the idea of introducing a global minimum value of the ratio of capital adequacy. Basel III requires tier 1 banks in the world is at least 7%. Andrew Haldan, the CEO of Bank of England said that the freedom granted to banks by the national regulators in the determination of RWA, and in particular in defining the criteria for “likelihood of failure” of the borrower may be inflated capital adequacy ratio by one third.
The calculation of RWA differs considerably in Europe and the USA. U.S. banks still RWA calculated on the basis of simplified and more specific rules set out in the original international capital standards – Basel I. The more complex Basel II formulas for calculating risk-weighted assets used by European banks offer opportunities for much more subjective interpretations by the banks and their regulators. According to Jamie Dimon, the CEO of JPMorgan, European banks have a competitive advantage because they “used a lot more aggressive RWA calculators from us.”

Soros has called for radical reform of the banking sector

Viliyana Filipova — Mon, 01 Feb 2010 01:41:25 +0000

The legendary investor George Soros called from Davos to radically reduce the size of banks that are too big to be allowed to fail transmitted BBC. At the World Economic Forum, he spoke in support of U.S. President Barack Obama in his attempts to separate commercial and investment banking. According to him, however, even after such action, most investment banks will still remain too large to fail. To control these banks, all major economies need to rally around strict rules to limit the risk – how much money banks can borrow to invest, “said billionaire. He acknowledges that it will be difficult to determine the exact ceiling on leverage, but that governments have enough time to develop a global regulatory framework. George Soros called the current economic crisis “super bubble” which was created by the system itself, and was the culmination of a series of smaller balloons in the last 25 years, and unsuccessful attempts to remove them. They add balloons were caused by facilitated credit and high financial leverage. As regulators and bankers were wrongly believed that markets are efficient, Soros continued, and were blinded by ideology that they should always be less regulated. And when the bubble burst, governments and regulators to further worsen the situation by reducing interest rates make money cheaper and thus to the mortgage crisis in the United States, which rocked the entire financial system.
Soros also warned politicians to prevent hasty and ill-considered regulation. According to him it is wrong to impose high taxes on the profits of banks, because the crisis is still not fully overcome.