Severe sanctions on Russia could hit sovereign and banks’ ratings, Fitch says

MOSCOW, Russia – New possible severe sanctions against Russia could have an adverse impact on its sovereign rating and the banking sector, Fitch rating agency said on Tuesday, February 8.

Tensions between Moscow and the West have intensified recently as Russia amassed troops on its border with Ukraine, while western leaders threatened to slap fresh sanctions on Russia if it invades Ukraine.

Moscow denies such plans, saying it has the right to move its army within its territory as it deems necessary.

“Our base case is that new sanctions would not be sufficiently severe to warrant negative rating actions, but the risk of this scenario has become more significant in recent weeks,” Fitch said.

Among sanctions that the West is considering against Russia are the suspension of the Nord Stream 2 gas pipeline project, blocking Russia’s access to global electronic supplies, penalties against Russian banks and government debt, as well as sanctions on individuals.

Measures with a larger sovereign credit impact include preventing systemic banks and corporates from transacting in US dollars or accessing the international payments system, or broad-based energy market sanctions disrupting exports, Fitch said.

Russia has a BBB sovereign rating with a Stable outlook from Fitch and comparable ratings from Moody’s and S&P, which helped Moscow to borrow money on global markets in 2021.

“The biggest impact on banking sector creditworthiness would be if sanctions impaired large state-owned banks’ ability to execute foreign-currency payments, particularly through banning dollar transactions,” Fitch said.

Tensions between Russia and the West have already dented Russian bonds, stocks, and the rouble, while also affecting other economies in the region.

Last week, Fitch revised its outlook on Ukraine to stable from positive, citing the likelihood of a protracted period of tensions with Russia increasing the country’s external financing risks, along with other factors. – Rappler.com