Russian Banks' CFOs Optimistic About Economic Conditions, Finds Survey

Moody’s Investors Service has conducted a survey of the chief financial officers (CFOs) of around 100 Russian banks, covering those CFOs’ expectations regarding Russia’s operating environment and their banks’ key financial metrics.

Although Moody’s shares the expectations of Russian CFOs on most topics, the report highlights cases were survey responses seem either aggressive, or out of line with recent trends. “For instance, Moody’s views CFO expectations of the extent of asset quality improvement in 2011 as overly optimistic, given our more conservative opinions on the recovery of problem loans and the anticipated performance of restructured loans,” said Eugene Tarzimanov, a Moody’s vice president/senior analyst and author of the survey.

Overall, the responses confirm the view that the Russian banking system is benefiting from the gradual economic recovery, which is:

• Driving a growing depositor base.
• Increasing loan demand.
• Improving profitability.

The survey’s main findings are:

• CFOs are optimistic about economic conditions in Russia, a country that suffered heavily from the recent crisis. Most bankers expect that lending growth will exceed 20% in 2011, compared with 12% in 2010, signalling that credit conditions are improving.
• Many CFOs expect increased profitability in 2011, owing to reduced credit risk and revenues from new lending.
• CFOs are optimistic on asset quality: 49% of respondents expect a decrease in the level of overdue loans, while only 8% expect an increase.
• Most bankers cite competition from state banks as a factor constraining the development of their franchises, a trend that became particularly pronounced during the 2008-2010 crisis when state banks encroached on the private banks’ market share.
• Many CFOs are concerned about their ability to sustain their net interest margin (NIM), signalling the impact of competition from public sector banks that have access to lower-cost funding.

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