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Russian banking sector has highest risk of default on bonds — experts

January 27, 21:00 UTC+3 MOSCOW
On Wednesday, the first deputy chairman of the Central Bank Sergey Shvetsov said that the regulator expects "quite many" defaults on the bonds in the coming years
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© ITAR-TASS/Anton Tushin

MOSCOW, January 27. /TASS/. The Russian banking sector is currently more than any other sector of the economy is exposed to the risk of default on bonds, experts say.

At the same time the weakest players have already left the market and the quality of borrowers is improving.

According to the Economic Development Ministry the use of new tools including those which are being developed by the Finance Ministry and the Central Bank, such as bail-in mechanism (salvation of issuers by creditors), can solve the emerging problem.

On Wednesday, the first deputy chairman of the Central Bank Sergey Shvetsov said that the regulator expects "quite many" defaults on the bonds in the coming years. The Central Bank, in its turn, is working on a mechanism to deal with such situations.

"The main risks of defaults can be emerging among the banks of "B" rating category, at the same time in the last two years, the issuers from this sector were leaving the market. Securities were mainly repaid as a result of offers or after the term of their circulation was over. As a result of withdrawal of those securities from the market the share of this sector rapidly shrank in the last two years. So I estimate the probability of default as 3% of that market, so these are small numbers,"- chief analyst of group of debt market analysis at Promsvyazbank (PSB) Dmitry Monastyrshin said.

According to the Moscow Stock Exchange, about 90 defaults were allowed in 2015.

Since the beginning of 2016, three issuers let a default situation happen.

Among the largest issuers defaulted in the past year were the Transaero air carrier, Vneshprombank, Nota-bank, Probusinessbank, SU-155. Also Mechel metal company Utair carrier allowed defaults with the subsequent restructuring of their debts.

"Inadequate" issuers

Experts note that the risk of default really grows as the recession of the Russian economy continues, but at the same time the market is being cleared of fraud and weak players.

"If we speak about high-quality borrowers, the situation has improved. Anyone who is related to export industries has recently improved their credit profile, which was also thanks to devaluation of the ruble. If we talk about eurobonds, where exporters prevail I do not see the growth of the risk of default," - head of the Directorate of the debt markets at Uralsib Capital Dmitry Dudkin said.

According to him, after the crisis of 2008, largely reliable issuers remained on the market.

"In the corporate segment, problems are more likely in the third tier, but it is very thin - there are few securities on the market. Investors are very well aware of the risks, and this segment has not been growing in recent years. Therefore, nothing like the massive defaults in 2008 is expected," - Dudkin said.

Banks in the risk zone

At the same time, experts note that the negative trend and an increased risk of default remain in the Russian banking sector against the backdrop of the mass withdrawal of licenses of credit organizations in 2015.

"There were quite many bankruptcies and rehabilitation measures. Many cases raise questions addressed to the banking supervision. For example, the case of Vneshprombank. It was virtually impossible to predict that the bank would go bankrupt. As for the main indicators the reporting did not raise any questions. This is the main concern - there are banks that are difficult to distinguish from normal healthy credit institutions. There are actually questions to the supervision conducted by the Central Bank ", - Dudkin said.

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