In response to questions from one of our subscribers, RusRating has prepared the following comments on its recent Bank of Moscow report. We believe that other subscribers should also receive this information.

Questions to the agency about the recent change in Bank of Moscow’s rating outlook:

1) What do you mean by "possible application of radical regulatory measures"? We assume you are referring to the announced substantial rescue package for Bank of Moscow.

Fitch may cut rating
Following the dismissal of Mayor Yuri Luzhkov Fitch, an international rating agency, added Bank of Moscow to its list of negative outlooks. The agency’s concerns are linked to the bank’s highly concentrated funding base: five major depositors account for 20% of the balance sheet.

Andrei Kozlov repeatedly said that he considered risk managment to be one of the most promising professions in the financial industry. As on many other issues, Andrey Andreevich was a thinker well ahead of his time.

The global crisis was caused by poor risk management and by the very agencies that are supposed to measure risk. Indeed the very companies that were supposed to have the most sophisticated risk management systems in the world and which invented risk management techniques failed. Yet the crisis ironically demonstrated how much we rely in the modern financial word on risk management and on rating agencies.

The refinancing of debt is a normal, everyday process for banks in any country, but opportunities for doing so are cut back sharply during a crisis. That is what happened in Kazakhstan, where a large portion of bank funding was drawn from the international capital market. The inability to refinance that debt made restructuring inevitable. Political factors made negotiations with investors more complex in the case of Kazakhstan than for, say, Russian banks: cases of less than entirely successful state intervention aimed at “saving” certain major banks were taken as a signal to re-evaluate the associated risks. Even so, the Kazakh market remains attractive for top players in the banking sector. New loans are, of course, a possibility, but regulators [in Kazakhstan] are taking a whole range of steps to open up new funding opportunities for both banks and the real sector, including access to Russian capital and the resources of international financial institutions and the development of a domestic debt market. I expect there will be a process of consolidation, including an increase in the market share of foreign banks, and that can also be seen as normal for a country whose economy has been weakened by the crisis but at the same time has clear prospects for further development.