S&P has downgraded Russia’s long-term foreign currency credit rating to ‘BB+’ from ‘BBB-‘, and has warned it could downgrade the ratings further, after gaining more clarity on the macroeconomic repercussions of the sanctions.
“In our opinion, the sanctions announced to date could have significant negative implications for the Russian banking sector’s ability to act as a financial intermediary for international trade,” S&P said.
It also cut Ukraine’s rating to “B-” from “B”.
Russia now has an “investment grade” rating of Baa3 from Moody’s and an equivalent of BBB- from Fitch, due to having one of the lowest levels of debt in the world, at just 20% of GDP. , and nearly $650 billion of foreign exchange reserves.
A downgrade, however, would lower that rating to the riskier category of “junk” or sub-investment grade.
“The decision to review the rating for downgrade reflects the negative credit implications for Russia’s credit profile of the additional and more severe sanctions being imposed,” Moody’s said in a statement.
Sovereign ratings reviews can take months, but are likely to be quicker this time.
Moody’s said its decision would take into account the scale of the conflict and the severity of additional Western sanctions, which have already hit some of Russia’s top banks, military exports and members of President Vladimir Putin’s inner circle.
He added that he would also weigh the extent to which Russia’s substantial foreign exchange reserves are capable of mitigating disruptions stemming from new sanctions and the protracted conflict.
“Moody’s will seek to conclude the review when these credit implications become clearer, particularly as the impact of the new sanctions takes shape in the coming days or weeks,” it said.
Moody’s also put Ukraine’s already-poor “B3” rating on review for downgrade.
