By Valentina Za
MILAN (Reuters) – The intensification of financial sanctions against Russia following its invasion of Ukraine has thrown European lenders into turmoil.
The European branch of Sberbank, Russia’s biggest lender, is at risk of bankruptcy, the European Central Bank (ECB) warned on Monday, after a run on its deposits sparked by the backlash of Russia’s invasion of Ukraine.
Upsetting the financial sector, Western countries will exclude certain Russian lenders from the SWIFT international payments system and, above all, will target the country’s central bank to prevent it from using its foreign exchange reserves.
These measures are intended to undermine Russia’s ability to deal with broader economic sanctions and threaten Western banks in Russia and exposed to its economy.
In Europe, Italian and French banks have the largest Russian exposure with just over $25 billion each at the end of September, followed by Austrian banks with $17.5 billion, according to data from the Bank for International Settlements.
By comparison, the exposure of US banks is $14.7 billion.
Which banks are affected?
INTERNATIONAL RAIFFEISEN BANK
The Austrian lender’s Russian unit ranks ninth among the country’s banks in terms of lending. With global assets of 15.8 billion euros, it employs approximately 8,700 people to serve more than 4.5 million customers. Its shareholders’ equity of 2.4 billion euros represents 18% of consolidated shareholders’ equity.
The Austrian bank’s Russian exposure amounts to 22.85 billion euros, more than half of which relates to the private corporate sector, it said in its 2021 results presentation.
The Russian central bank accounts for 8% of RBI’s exposure to the country, sovereign entities 4% and Russian banks 2%.
The overall figure includes 11.6 billion euros in customer loans (ie 11.5% of the group). Just over 80% of loans are in Russian rubles, with foreign currency loans reserved for borrowers with corresponding foreign exchange income.
However, the cross-border exposure to Russia is only 1.6 billion without funding from the parent company in Vienna. Raiffeisen also holds 2.2 billion euros in loans to Ukrainian customers.
Loss provisions cover 64.3% of RBI’s impaired exposures in Russia.
Raiffeisen Bank International chief executive Johann Strobl told Reuters that RBI’s Russian subsidiary “has a very strong liquidity position and (is recording) inflows”.
The French bank, which operates Russian unit Rosbank, had 18 billion euros of global exposure to Russia at the end of last year, or 1.7% of the group’s total.
This includes both on-balance sheet and off-balance sheet items (eg a line of credit that has not yet been tapped) under a risk disclosure definition called “exposure at default”.
Of SogGen’s Russian exposure, 39% is for the corporate sector and 36% for retail. Sovereign entities represent 21%, financial institutions 4%.
Actual loans increased by 13.3% last year to reach 10.5 billion euros.
Societe Generale began its activities in Russia in 1872 then left the country in 1917, the year of the Bolshevik revolution, to return there in 1973. It has 1.5 million local customers.
Its retail business in Russia – to which 1.05 billion euros of capital was allocated on average last year – made a net profit of 115 million euros in 2021, compared to 37 million euros in 2020 Including financial services, SG Russia’s net profit was 152 million euros, compared to 76 million in 2020.
The bank said it had put measures in place to adapt to the new sanctions imposed on Russia and that its Russian unit Rosbank continued to operate in a “safe” manner.
The only Italian lender deemed global systemically important by regulators has a subsidiary in Russia that ranks 14th among the country’s banks. UniCredit Russia’s 2.3 billion euros in equity represents 3.7% of the group’s total.
UniCredit’s exposure at default to Russia was €14.2 billion based on its Pillar 3 risk disclosure requirements as of mid-2021.
Of the total amount, approximately 8 billion euros are loans granted by the Russian branch and financed locally, while the rest comprises off-balance sheet items and cross-border loans mainly granted by UniCredit SpA to large companies outside Russia. .
UniCredit said last week that its Russian franchise accounted for only around 3% of the group’s revenue and provisions covered 84% of its non-performing exposures.
Rival Italian heavyweight Intesa Sanpaolo is also active in Russia where it has financed major investment projects such as the “Blue Stream” gas pipeline and the sale of a stake in oil producer Rosneft.
Intesa’s loan exposure to Russia stood at 5.57 billion euros at the end of 2021, or 1.1% of the total.
Its subsidiaries in Russia and Ukraine have assets of €1 billion and €300 million respectively, which together represent only 0.1% of the group’s total assets.
Intesa, Italy’s largest bank, handles more than half of all commercial transactions between the two countries.
The Dutch bank has around €4.5 billion in outstanding loans with Russian customers and around €600 million with Ukrainian customers, out of a total loan portfolio worth more than €600 billion. euros.
The majority of these loans are in euros and dollars, mainly project finance and guaranteed loans, and in a good number of cases the loans and guarantees are outside Russia or Ukraine.
ING said numerous sanctions against Russia have been in place since 2014.
(Additional reporting by Brenna Hughes Neghaiwi in Zurich, Toby Sterling in Amsterdam, Alexandra Schwarz-Goerlich in Vienna; editing by John O’Donnell and Andrew Heavens)