Fitch Ratings has downgraded the Long-Term Foreign Currency (LTFC) Issuer Default Ratings (IDRs) of thirty-one Russian banks to “CC” from “B.” The Short-Term IDRs have been downgraded to “C” from “B” this week, and all banks have been removed from Rating Watch Negative (RWN).
Fitch Ratings is a leading provider of credit ratings, research, and analysis for the global financial markets. According to the Fitch website, a “C” rating means the company, bank, or institution is near default. A “CC” rating represents a very high level of credit risk, with default probable.
“Russian banks’ LTFC IDRs now reflect our opinion that some form of default on FC (foreign currency) financial obligations or deposits is probable over the ratings horizon, due to restrictions imposed on FC financial obligation payments to certain international creditors under the [Russian] Presidential Decree or broader intervention in the FC operations and deposits of the banking sector,” said Fitch.
The Viability Rating of all Russian banks has also been downgraded from “B” to CCC” to reflect a sharp decline in the operating environment of banks. A rating of “CCC” represents a substantial credit risk, with a very low margin for safety. After the United States and European Union imposed sanctions on Russia, the banks continue to have increased financial market risks.
Earlier this month, the European Union cut off seven Russian banks from the SWIFT payment system, leading to a high risk to the asset quality, liquidity profiles, funding, and solvency of Russian banks. Being cut off from the SWIFT banking system makes it more difficult for these banks to make cross-border payments.
Though the European Union took these measures to sanction those seven Russian banks, they did not cut off all Russian banks, especially energy firms, fearing that such a move would increase prices, causing Russian exports to benefit.
The United States and the United Kingdom have also placed sanctions on several Russian banks, adding pressure to Moscow’s financial infrastructure. On March 3, S&P Global Ratings also cut down its foreign and local currency sovereign ratings on Russia from “BB+/B” and “BBB-/A-3” to “CCC-/C”.
“We estimate that international sanctions have reduced Russia’s available exchange reserves by as much as one-half, including foreign currency deposits and securities domiciled in the U.S., the EU, and Japan. This has substantially weakened Russia’s external liquidity during a period of rising foreign currency demand,” said S&P Global.