Tashkent, Uzbekistan (UzDaily.com) -- In a report titled “As Economic Conditions Look Up, Kazakh, Russian, And Ukrainian Banks Are Slowly Switching To Recovery Mode”, Standard & Poor's Ratings Services said that banking systems in Kazakhstan, Russia, and Ukraine (KRU) appear to be slowly but surely recovering from the worst of the financial and economic crisis of 2009-2010. "This is demonstrated by 11 upgrades and over 30 outlook changes in a positive direction we've taken on financial institutions in these three countries since April 1, 2010, compared with just two downgrades," said Standard & Poor's credit analyst Annette Ess. As macroeconomic conditions have improved and banks' operating environments stabilized, we've seen pressure on their financial and business profiles gradually abating. “We expect that this gradual improvement in credit quality will continue and translate into an increasing number of upgrades over the next 12 months. Ratings in the sector will remain low compared with the international average, reflecting the still high industry and economic risks prevalent in these regions,” the agency said. The agency anticipates that positive rating actions will continue, given our expectation of the following main industry trends:

• A slowly declining stock of problem loans;
• Stabilizing credit costs at moderate levels;
• Enhanced loss-absorption cushions through provisions built up, strengthened capitalization from shareholders' capital injections, or a recovery in retained earnings and lower asset growth expectations;
• A high share of liquid assets;
• Growth in customer deposits;
• Improved refinancing prospects;
• A rebound in profitability through a stabilization in the net interest margin and more emphasis on cost controls;
• Continued external support, including government support; and
• An improving regulatory environment.

"To consider upgrades we would seek evidence that financial institutions' asset quality shows a material and sustainable positive trend," added Standard & Poor's credit analyst Ekaterina Trofimova. "We will also consider tangible signs of improving financial performance, normalization of the lending and funding structures, strengthened risk management. A decline in individual concentrations would also be a positive rating factor." “If the current macroeconomic trends continue, we expect negative rating actions would be in the minority, reflecting either merger and acquisition-related risks or negative trends in the financial profile, such as liquidity, asset quality, and capital, related to unsustainable growth or negative earnings performance,” S&P said.