(The following statement was released by the rating agency) MOSCOW/LONDON, October 21 (Fitch) Russian local and regional governments' (LRGs) financial flexibility is deteriorating as debt maturities shorten, spreads widen and access to domestic bond markets becomes less reliable, says Fitch Ratings. Refinancing risk and servicing costs are rising as domestic bonds and bank loans become less affordable. Market access was limited during the summer, and despite the revival of domestic bond issuance in October Russian LRGs' ratings are still under pressure as their deficits need to be covered by less available and more expensive funding. LRGs have always financed most of their debt domestically, so the EU and US sanctions on transactions with Russia do not affect them directly, but as previously international bond issuers tap the domestic market funding availability for LRGs has reduced. Even investment-grade LRGs, like Khanty-Mansyisk Autonomous Region ('BBB'/Negative) and Novosibirsk Region ('BBB-'/Stable) have faced significant rate increases. Both issued five-year domestic bonds in October 2014 with annual interest rates of 11.9%, up from 8% on a bond issued by Novosibirsk a year ago. Rates and other terms offered by banks on LRG loans have also deteriorated. But loans from local banks remain a vital source of funding for most Russian LRGs due to this instrument's greater flexibility in managing short- and medium-term financing needs. The federal government has provided some relief through alternative sources of funding, but LRGs remain exposed because of their wide structural fiscal deficits. Tax regulations introduced in 2013 along with 2012 expenditure requirements, which stemmed from presidential pledges, limit the regions' ability to balance budgets. The federal government relief includes medium-term budget loans at subsidised rates to the most affected regions. The federal treasury has also introduced a new instrument - short-term loans for regions aimed at liquidity replenishment. Contact: Konstantin Anglichanov Director +7 495 956 9994 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow, 115054 Jeremy Carter Managing Director Fitch Wire +44 20 3530 1391 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.