Moody's Downgrades Banks

Moody's Investors Service listed the global financial crisis, dominance of state-owned banks and banks' appetite for risk as reasons for its negative outlook for the Russian banking system over the next 12 months in a report to be released Friday.

The weaknesses, which also include slow progress in applying international best practices and large volumes of operations with related parties, became especially apparent amid a severe drop of the Russian stock market last week, the company said.

Banks have been slow to respond to the shrinking liquidity by curbing lending expansion and obtaining more highly liquid assets, Moody's said. Therefore, they remain dependent on the interbank lending market and vulnerable to a run, even moderate, on private deposits, it said.

Moody's report put Russian banks below Pakistan and Mongolia but above Tunisia in terms of average financial strength.

More positively, a growing number of foreign banks in Russia bring capital and modern technologies while wide interest margins underpin profitability, Moody's said.

n Renaissance Capital was placed on Thursday on review for downgrade by Moody's, which cited liquidity concerns, Bloomberg reported.

"The rating action reflects Moody's concerns that the current market turmoil is likely to continue or even deteriorate and that this could negatively affect the company's financial metrics and liquidity profile," Moody's analyst Vladlen Kuznetsov wrote in the report.

The agency said it might downgrade the bank's Ba3 long-term foreign currency rating, which is three notches below investment grade.