The ongoing turmoil in global oil markets is credit negative for banks in the oil-exporting countries of the Commonwealth of Independent States (CIS) – Russia, Azerbaijan, Kazakhstan and threatens their capital and profitability, Moody’s Investors Service said in a report published Thursday, according to the Financial Mirror.
“If economic conditions continue to worsen, banks’ asset quality will materially deteriorate,” said Olga Ulyanova, VP-Senior Credit Officer at Moody’s. “Also, net interest margins will narrow as funding costs increase as a result of banks’ efforts to prevent deposits outflows amid a potential massive conversion of local currency deposits into foreign currency and, in some cases, central banks’ hikes of interest rates to stem inflation stocked by currency depreciation.”
Brent crude oil prices dropped from an average of $64 per barrel in 2019 to $25.5 per barrel as of 18 March 2020, the lowest since 2003. The oil price plunge has triggered a weakening of major oil exporters’ local currencies.
This is weakening the three countries’ local currencies, eroding capital adequacy of banks with large foreign currency assets, Moody’s said.
The Russian ruble fell 23% against the U.S. dollar this year to 18 March. The Kazakh tenge depreciated 14% during the period. The Azeri manat has been stable thanks to foreign-currency sales by the state oil fund. However, if oil prices stay at current record low levels for a prolonged period, the Azeri government will face significant pressure to devalue its currency, Moody’s said.
