08 July 2013, 00:00

The state budget has failed

The budget deficit affected not only government spending, but also the ratings of the banks it owns Tatyana Bochkareva Dmitry Kazmin Olga Kuvshinova Olga Plotonova V. Baranov / Vedomosti

The rating agency Moody's downgraded the long-term debt and deposit ratings of the largest Russian state banks: by one notch - Sberbank (to Baa1 from A3), VTB (to Baa2 from Baa1) and its retail subsidiary VTB 24 (to Baa2 from Baa1) and by two notches – Rosselkhozbank (up to Baa3 from Baa1); rating forecasts are stable. Moody's also downgraded the subordinated debt ratings of these banks and revised the outlook for VTB's financial strength rating, raising it to "stable". The autonomous rating of RSHB, which does not take into account government support, was reduced by two levels: from B1 to B3, with a negative outlook. This is due to the increase in problem loans in 2012 – over the year their share increased from 21 to 27%.

Moody's explains the downgrade in ratings by overestimating the Russian government's ability to provide systemic support to banks. The main reasons for this decision are the deterioration of the Russian budget, which is unstable to a long-term decline in oil prices, and the reduction of the reserve fund and the national welfare fund.

VTB takes into account Moody's decision, but considers the agency's conclusions to be overly conservative, the bank's press service comments: “The state has provided and continues to provide banks with diverse support in order to develop the national financial system. The scope and tools of support may vary depending on specific needs.”

VTB 24 does not expect big consequences from the rating downgrade. By and large, this is a formal indicator and it cannot affect either the stability of the bank or its business, the representative of VTB 24 is sure.

RSHB is a state financial instrument for supporting the agro-industrial complex, so state support will be maintained in the required volumes and will be a priority, says a representative of RSHB: in March, Moody's confirmed Russia's rating with a stable outlook, including on the basis of consistently high budgetary and financial indicators.

A Sberbank representative did not comment on the rating.

Moody's decision is not surprising; the trend towards downgrading the ratings of state-owned banks has long been clear, says B&N Bank analyst Mikhail Gonopolsky. The downgrade of ratings will not have an impact on the cost of borrowing by Sberbank and VTB, since the price of Eurobonds is more influenced by the rise in price of 10-year US Treasury bonds, Gonopolsky continues: this leads to an increase in the cost of borrowing for all issuers, including Russian ones. In order for investors to start including a rating downgrade in the price, it is necessary for other rating agencies to lower their assessment of the bank, he believes. For Sberbank and VTB, the downgrade of the rating will now pass without consequences; on the securities of the Russian Agricultural Bank, a downgrade of the rating by two levels could have an effect - perhaps the spread will increase by 0.1–0.2 percentage points, Gonopolsky believes.

The ratings of Sberbank, VTB and RSHB have been under review by Moody's since April, agency analyst Evgeny Tarzimanov said two weeks ago. “We are considering the desire and ability of the state to support state-owned banks,” he explained. “There is a desire, but the possibilities of support, in our opinion, may be lower than before the crisis.”

Meetings were organized for Moody's employees with representatives of the Ministry of Finance and the Bank of Russia, a representative of one of the state banks knows. At these meetings, assurances were given of the state's desire and ability to help systemically important banks. He also notes that the bulk of federal budget expenditures are denominated in rubles, and the ruble exchange rate is in fact floating, so a possible decrease in oil prices does not automatically lead to a decrease in budget revenues and, therefore, the ability to provide support to systemically important banks.

A government official says the rating agency's appeal to budget problems and insufficient anti-crisis support is strange.

The experience of 2008 showed that banks received the necessary support, funds were reserved in the budget in case of problems, he says, including what analysts from rating agencies were told. “We are not making any tragedy out of this downgrade; the rating is influenced not only by objective, but also by subjective factors,” he sums up.

The crisis sharply reduced the state's resources, the economy began to slow down in growth from mid-2012, and this year in January-May it was only 1.8% compared to the pre-crisis 7%, according to the Ministry of Economic Development. If in 2007, 80% of federal spending was provided by revenues other than oil and gas, then in 2011–2013. - less than half (for comparison: even in the crisis year of 2009 - 40%), the non-oil and gas deficit tripled and reached 10% of GDP.

Downgrades of global banks' ratings due to government budget problems are uncommon. In June 2012, when Moody's, amid the ongoing crisis in Europe, downgraded the ratings of banks such as Barclays, BNP Paribas, Credit Agricole, Credit Suisse, Deutsche Bank, Societe Generale and UBS, various risk factors were cited among the reasons for this decision - from high dependence on capital markets to liquidity problems and investments in European securities.