Russia's credit rating slashed to junk, same as Angola and Nicaragua
Russia's invasion of Ukraine has that nation on risky financial footing, with the major credit agencies now leveling its credit to junk status. The downgrades come amid crippling sanctions — arguably the toughest and swiftest on any country in modern times — intended to curtail Russia's ability to support its currency, the ruble, and import and export goods.
Moody's on Thursday cut Russia's rating to junk, echoing a step taken by Fitch a day earlier. Both say Western sanctions imposed over Moscow's military intrusion into Ukraine would harm the economy and heighten the potential of Russia defaulting on billions in debt.
Already wreaking havoc on the lives or ordinary Russians, the measures imposed on Russia's financial sector by the United States, European Union and United Kingdom include blocking its access to the SWIFT global financial system. The sanctions for the first time restrict Russia's central bank, targeting more than $600 billion in reserves.
The range and harshness of the sanctions surpass "initial expectations and will have material credit implications," Moody's wrote in its downgrade, cutting Russia's rating by half a dozen notches, to B3 from Baa3.
The restrictions on Russian banks' access to SWIFT and the sanctioning of large state-owned banks and the Central Bank of Russia will effectively block them "from participating in the global financial system," the rating agency stated.
The downgrade puts Russia on a similar junk-creditworthiness footing to such countries as Angola, Bosnia, Kyrgyzstan, Moldova, Mongolia, Nicaragua, Niger and Pakistan, according to Trading Economics.
Fitch downgraded Russia to "B" from "BBB" and put its rating on "watch negative."
The only equivalent to such a massive downgrade on a single sovereign entity was South Korea in 1997 amid that era's Asian financial crisis, according to Fitch. "The severity of international sanctions in response to Russia's military invasion of Ukraine has heightened macro-financial stability risks, represents a huge shock to Russia's credit fundamentals and could undermine its willingness to service government debt," Fitch stated in a report.
U.S. and European Union sanctions barring any transactions with the Central Bank of Russia would weigh more heavily on Russia's "credit fundamentals than any previous sanctions," Fitch said.
S&P reduced Russia's rating to junk last week.
MSCI on Wednesday said it would rid its Emerging Markets Indexes of Russian stocks, describing the Russian equity market as "currently uninvestable."
Citigroup is among the entities likely to take a financial hit. The bank held $5.4 billion in exposure to Russian assets at the end of December, according to a regulatory filing on Monday. The figure represents 0.3% of the bank's assets last year, stated the bank, which calculated its total third-party exposure in Russia at almost $8.2 billion.
"Citi continues to monitor the current Russia-Ukraine geopolitical situation and economic conditions and will mitigate its exposures and risks as appropriate," it stated in the document.
