Moody's Investors Service has revised its outlook for the Russian banking sector from negative to stable.
The rating agency cited emerging signs of the recovery of the Russian economy that is likely to have a positive impact on banks.
"Slow economic recovery and stabilization of macroeconomic indicators in Russia will support the operating environment for Russian banks," said Vice President and Senior Credit Officer at Moody's Irakli Pipia. "We therefore expect improvements in banks' profitability and capital retention."
Moody's also said that Russia’s economy is likely to contract by only 1% this year amid oil prices stabilization and powerful stimulus measures by the government that support growth prospects in 2017.
This means that Russian banks are likely to post positive net profitability in 2016 and show a gradual improvement in the long run. However, net interest margins still remain below the average level of 4% in the first half of 2016.
Meanwhile, experts note that asset quality is seen to deteriorate, however at a slower pace. In addition, the rating agency expects problem loans to rise to 14%-15% of total loans over the next 12-18 months from 12% at end-2015.
As for the banking system's capitalization, Moody’s sees it improving on the back of capital injections by the government.
