The quality of assets in the Russian banking sector may actually be much worse than official data show, warned the international monetary Fund (IMF) in the annual report on the results of consultations with the Russian authorities. The level of bad debts, amounting, according to the Bank reporting a 9.2% by the end of the first quarter of 2016, may be about 3.5 percentage points higher if adjusted for the real quality of restructured loans, incorrect or inaccurate classification of some loans and the practice of the hanging of bad assets to off-balance sheet affiliates, according to the materials of the IMF.
Russia’s banking sector is now stable but it is subject to “significant risks” of the asset quality, according to the IMF. Even if Russia will manage to avoid further deterioration of the macroeconomic situation, Bank losses on problem loans may be “significant”. According to the Fund assessing the stability of the financial system (FSAP), the shortage of capital of Russian banks as a result of underestimation of troubled assets may be 0.5—1% of GDP. And in the stress scenarios it reaches about 4.5% of GDP in 2017-2018. However, this only applies to the scenario where we simulate the fall of the Russian economy by almost 8%, the average Brent oil price of $19 per barrel and the dollar at the level of 100 rubles, follows from materials of the IMF.
“Credit quality continues to deteriorate with the announced level of NPLs at 9.2% in the first quarter of 2016”, — said Fund. On June 1, 2016, the share of problem and bad loans in the total volume of loans issued by Russian banks, according to the Central Bank, has already reached 9.4 per cent. The capital adequacy ratio of the banking system is 12.4% (the standard is 10%). But the practice of lending to related parties and risk concentration of the loan portfolio to individual borrowers is cause for concern, says the IMF, and the banking sector may need additional capital.