Fitch: Russian banks growing

Fitch Ratings said in a report that sources of weakness for Russian banks are loan growth rates, sector fragmentation and developing regulation.

The agency also said Russian banks have sound asset quality, which reflects the supportive credit environment, and that their growth stems from a low base, which mitigates credit risks. Larger state-owned and private banks also are growing their scale and franchise, which gradually improves core profitability and diversifying risks while expanding funding sources and achieving greater capital flexibility, Fitch said.

"The large number of banks, coupled with the use of statutory unconsolidated accounts for reporting purposes, makes sector regulation a considerable challenge," Alexander Danilov, director in Fitch's financial institutions group, said in a written statement. "Despite significant improvements in recent years, supervision remains focused to a large degree on formal compliance with guidelines rather than on substantive analysis, while use of IFRS for reporting has been postponed until at least 2008."

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