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Credit watch – Fitch downgrades Russia to 'BBB-' – retains negative outlook


Fitch announced on Friday evening that it was downgrading the Russian Federation sovereign ratings to 'BBB-', from 'BBB', and retaining a negative outlook.

The agency noted the sharp declines in the oil price and the rouble, chronic exchange rate volatility, a steep rise in interest rates, stress in the banking system and the consequent significant deterioration in the economic outlook, along with the persistent drain in international reserves, as the main factors behind the downgrade.

Following the rating action, Fitch has Russia's sovereign rating at the lowest investment grade (BBB-) with a negative outlook. The rating agency specified several triggers for potential further negative rating actions, specifically: i) continued exchange rate volatility and instability in the financial sector; ii) sustained low oil prices and/or continued recession in 2016; iii) faster than expected depletion of FX reserves (USD 315bn by the year-end); and iv) tighter sanctions or a geopolitical risk event.

In practice, a borrower can linger on with a negative rating outlook for an extended period of time, whereas a more immediate rating action might come from S&P. To recap, S&P decided to place Russia's sovereign ratings (also 'BBB-') on CreditWatch Negative in late December and indicated mid-January as the likely timeline for the conclusion of its reassessment and consequent rating action.

Vladimir Kolychev
VTB Capital analyst

raiting, Russia

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