OREANDA-NEWS. The 2015 outlooks for banking systems in the Commonwealth of Independent States (CIS) are dominated by geopolitics and oil, Fitch Ratings says. Sanctions and the lower oil price will affect the Russian economy and its banks, while Ukrainian lenders are experiencing considerable stress as a result of the country's crisis. The performance of banks in other CIS countries should be more stable, but they will also face challenges stemming from weaker Russian demand and lower oil revenues.

Fitch expects the Russian economy to contract by 1.5% in 2015, and there is significant downside risk to this forecast in the case of tightened sanctions, accelerated capital flight or a further fall in oil prices. The weak economy, already large depreciation of the ruble, closed wholesale funding markets, rising inflation and high interest rates will put significant pressure on banks' credit profiles and ratings next year, and the sector outlook is negative.

In Fitch's view, increased impaired loans, more moderate profitability and continued corporate loan growth will add pressure to Russian banks' capital ratios, some of which are already tight due to a combination of legacy NPLs, recent expansion and ruble depreciation. However, Fitch expects Central Bank swap and repo facilities to support FX liquidity and enable banks to meet sizeable external debt maturities in 2015.

Ukraine's banking system is experiencing considerable stress as a result of the country's crisis. Fitch expects operating conditions to remain very difficult in 2015 and beyond, reflected in the negative sector outlook. Banks' credit profiles have deteriorated sharply as a result of increased loan impairment and sharp hryvnia depreciation, which have impacted both capital ratios and funding stability.

Economic growth should remain solid in Kazakhstan in 2015, supporting the stable outlook on the banking sector, notwithstanding drags from Russia, the lower oil price and tenge devaluation. However, bank performance will remain subdued due to limited new business and further provisioning on legacy NPLs. Loan book clean-ups are unlikely due to the limited size of the Problem Loans Fund, and banks will probably move loans to captive SPVs to meet the end-2015 NPL target.

The outlooks for banks in Azerbaijan, Belarus and Uzbekistan are stable, given already low ratings. However, challenges will increase as a result of lower oil prices (Azerbaijan) and the weak Russian economy (Belarus, Uzbekistan). The sector outlook is moderately positive in Georgia as the economy continues to grow strongly, benefiting lenders whose financial metrics remain robust.