Political Bias Behind Downward Revision of Russia’s Rating is Obvious

As a result of sanctions introduced by the US and the EU against Russia, Fitch and Standard & Poor's international rating agencies revised downward the forecast of Russia's long-term rating from "stable" to "negative".


Downward revision of Russia's ratings did not come unexpectedly as a political bias of such estimations is obvious. However, all the world's banks take into account the ratings of the three major rating agencies. It means that additional percentage points will be added to the base rates and that makes borrowings for Russia automatically more expensive. If that process continues in future, it will develop at a slow pace.

As regards the outflow of capital, in the 1st quarter of 2014 the record-high volume of about $73bn was actually registered (according to our preliminary estimates). At present, one has an idea that all those who sought to withdraw capital from Russia did it in the 1st quarter. What is left in Russia is only a reliable capital or less liquid capital that is hard to withdraw from the country. So, in theory, one can expect a decrease in capital outflow, stabilization on the currency market, as well as appreciation of the ruble.

Another consequence of US sanctions against Russia was suspension by Visa and Master Card payment systems of operations with cards of customers of Bank Rossia and SMP Bank (however the blocking was lifted later). That political decision was short-sighted in economic terms. To prevent such threats in future, the Central Bank of Russia made a principal decision to go ahead with establishment of a national payment system with an internal processing center on the basis of the Central Bank of Russia. The cost of the project is estimated at $100m which is not a high price for security.

The example of blocking of cards of customers of Bank Rossia points to vulnerability of processing operations of Russian banks. One can only suppose what might happen in case of suspension of operations with cards of customers of, say, Sberbank – that measure would have hit dozens of millions of Russians. In case of establishment of a national payment system, Visa and Master Card will become customers of the Russian system and there will be no further cooperation as it used to be before.

Alexei Vedev, Director of the Structural Research Center