Russia freezes bank credit ratings to help maintain stability

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” href=”https://www.law360.com/financial-services-uk/articles/1477503/#”>Najiyya Budaly ·


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” href=”https://www.law360.com/financial-services-uk/articles/1477503/#”>Najiyya Budaly Law360, London (March 25, 2022, 11:33 GMT) — The Russian government said on Friday that The country’s bank credit ratings will remain frozen for five months to ensure financial stability as Western sanctions hit following the invasion of Ukraine.

The credit ratings of Russian lenders such as VTB Bank, pictured in Moscow, have been frozen for five months as Western sanctions bite. (AP Photo/Pavel Golovkin)

The Russian government has said that bank credit ratings will remain fixed at their February 1 level until the beginning of July. The resolution, which was signed by Russian Prime Minister Mikhail Mishustin, applies to all ratings issued by agencies in the country.

Rating agencies provide an independent assessment of a country’s or company’s creditworthiness to help investors make financial decisions. They play a vital role for banks in their search for access to capital and help determine their borrowing terms.

“The credit rating freeze will allow the major banks to continue to place funds from the federal budget to maintain their profitability, to attract funds from the compensation fund for participants in shared construction,” the government said. “In addition, banks, as before, will be able to issue independent guarantees to companies.”

Russia has said the move will help reduce the damage caused by sanctions imposed by “hostile states” – many Western governments – on the country’s banks.

The European Union has banned Russia from having access to European credit rating agencies to an extent it hoped deter investors to fund Vladimir Putin’s regime.

Major global credit rating agencies such as Moody’s, S&P and Fitch have deeply downgraded Russian government debt to speculative status: Fitch has warned of an impending fault as Western financial sanctions tighten.

Fitch, S&P and Moody’s announced this week that they would withdraw ratings of Russian entities and their subsidiaries by April 15.

Europe, the United Kingdom and the United States hope to cut off Russian banks from Western financing. Britain has imposed penalties on lenders including VTB Bank, whose UK branch has been delisted on the London Stock Exchange, Gazprombank and the state-owned Russian Agricultural Bank. Britain also has frozen assets Russian lenders.

The EU has also closed seven big russian banks outside the SWIFT messaging system that facilitates global financial transactions.

–Edited by Ed Harris.

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