Incidence of CIS bank defaults has likely peaked

The global financial crisis has led to a significant number of defaults among banks in the Commonwealth of Independent States (CIS), according to Moody’s.
However, with the adverse operating conditions beginning to show some signs of easing, the incidence of default has likely peaked, the rating agency said in a new report that documents the 23 cases of default among the 190 rated institutions in the CIS. All 23 cases were rated into the speculative-grade territory before the crisis.
"More than 60% of the defaulted banks had single-B ratings at the beginning of the crisis, reflecting weak liquidity management, poor underwriting standards and high concentrations in their loan books. Such features made them particularly vulnerable to the financial crisis," said Katrin Robeck, associate analyst and co-author of the report.
"About 10% of the rated banks in the CIS region have investment grade ratings after incorporating assumptions of external support. As the crisis unfolded, we saw many instances of support from national governments and/or the foreign owners of these institutions, which helped many of them weather the financial crisis and, in a few cases, avoid default," added Yaroslav Sovgyra, co-author of the report.
According to the report, more than 85% of all CIS bank defaults occurred at the height of the global financial crisis, during the last few months of 2008 and the first half of 2009. A number of Russian banks with large market risk exposure and weak liquidity management defaulted shortly after the Lehman failure in September 2008. Most Ukrainian defaults occurred in early 2009 after banks experienced significant deposit outflows. Of the four defaults in Kazakhstan, three occurred in March/April 2009, when the government decided to support depositors but not the bondholders of these institutions.
With depositor confidence remaining weak throughout the CIS region, default risk is still high, as suggested by the Moody’s ratings which are in speculative grade territory for about 90% of the banking institutions covered in that region. The report notes that runs on bank deposits were a key contributing factor in about half of the CIS defaults documented since the beginning of the crisis.