00:50 25.02.2015 (updated 02:31 25.02.2015)

Moody’s rating agency downgrades the ratings of 15 regional and local governments in Russia, including Moscow and St. Petersburg.

MOSCOW (Sputnik) Moody’s has downgraded the ratings of 15 regional and local governments (RLGs) in Russia, including Moscow and St. Petersburg, as well as 3 government-related issuers (GRIs), the rating agency has announced.

These rating actions follow the weakening of Russia’s credit profile as captured by Moody’s downgrade of Russia’s government bond rating to Ba1 (negative outlook) from Baa3 (review for downgrade) on 20 February 2015, Moody’s said in a press release issued on Tuesday.

According to the release, the RLGs that have been subject to Moody’s downgrade include 11 Russian regions and 4 cities. The outlook is negative for all of the ratings, except the Republic of Tatarstan, which is on review for downgrade.

The ratings of Moscow and St. Petersburg were lowered from Baa3 to Ba1.

The downgrades of the ratings on the cities of Moscow and St. Petersburg reflect their strong institutional links with the federal government and their lack of special status, which prevents them from being rated above the sovereign. In addition, both cities are exposed to market risks and ongoing deterioration in the operating environment, Moody’s said, explaining the reasons behind the ratings’ downgrade.

The negative outlooks for the ratings of Russia’s two major cities mirror the negative outlook on the sovereign government bond rating, Moody’s added.

The rating agency expects Russia’s economy to contract in 2015-2016 because of the oil price collapse and the ongoing crisis in Ukraine that has prompted the West to impose economic sanctions on Russia, over its alleged involvement in Ukraine’s internal affairs.

As a result, Russian regions will face increasing pressure on their financial fundamentals while higher borrowing costs could potentially heighten refinancing and liquidity risks, Moody’s said in its Tuesday statement.

Also on Tuesday, the agency downgraded the ratings of seven Russian financial institutions, including Sberbank, Russia’s largest lender.

Moody’s lowered Russia’s sovereign debt rating from Baa3 to Ba1 with a negative outlook on February 21, citing the situation in Ukraine and slumping oil prices as some of the reasons behind the downgrade.

The decision came soon after Fitch downgraded Russia’s credit rating to BBB- in January, while Standard & Poor’s (S&P) lowered Russia’s sovereign rating from BBB- to a junk BB+ with a negative outlook that same month.