01.03.202223:54 Forex-elemzések és áttekintések: European banks affected by the consequences of sanctions against Russia

After the invasion of Russian troops on the territory of Ukraine, many Russian banks fell under sanctions. However, some fairly large financial groups in Europe will also not be able to avoid losses. Here is a short list of the main credit institutions whose assets may be at risk one way or another.

European banks affected by the consequences of sanctions against Russia

In addition, Western countries will exclude some Russian creditors from the SWIFT international payment system and, most importantly, will target the country's central bank so that it does not use its gold and foreign exchange reserves.

As you already know, on Monday the European Central Bank warned that the European division of Sberbank, Russia's largest lender, could collapse after a massive withdrawal of its deposits caused by a negative reaction to Russia's invasion of Ukraine.

These actions are aimed at reducing Russia's ability to withstand broader economic sanctions and thereby influence the military conflict.

At the same time, in Europe, Italian and French banks have a fairly large share in Russia - just over $25 billion each as of the end of September. They are followed by Austrian banks with $17.5 billion. The total risk of US banks is $14.7 billion.

Which banks have suffered the most?

RAIFFEISEN BANK INTERNATIONAL (RBI)

The Russian division of the Austrian financial and Credit Group ranks ninth among the country's banks in terms of loans.

With total assets of 15.8 billion euros, it employs about 8,700 employees who serve more than 4.5 million customers. Equity in the amount of 2.4 billion euros is 18% of the consolidated capital.

The Russian risk of the Austrian bank is about 22 billion euros, more than half of which falls on the corporate private sector (according to the internal corporate presentation for 2021).

The central bank of Russia accounts for 8% of Raiffeisen Group's risks in the country, sovereign entities account for 4%, and Russian banks account for 2%.

This amounts to 11.6 billion euros of consumer loans (or 11.5% of the group). While loans in foreign currency are provided to borrowers with a corresponding income from currency exchange.

It should be noted that cross-border access to Russia is only 1.6 billion (without parental funding from Vienna). Raiffeisen also has 2.2 billion euros in loans for Ukrainian clients.

So far, loss reserves cover 64.3% of the company's impaired risks in Russia.

RBI executive director Johann Strobl told Reuters that the group's Russian subsidiary "had a very strong liquidity position and was registering inflows." However, now the group will incur losses due to the general economic situation in Russia, and in addition, international losses related to the untimely closure of contracts and similar force majeure.

SOCIETE GENERALE bank

The French bank, which manages the Russian division of Rosbank, at the end of last year had a total risk in Russia worth 18 billion euros, or 1.7% of the total amount for the group.

This includes both balance sheet and off-balance sheet items (for example, a credit line that has not yet been used) in accordance with the definition of risk disclosure, known as "exposure to default risk".

This is not so much in the total mass, however, due to the distribution structure of the markets, the bank's obligations are under threat.

Thus, 39% of SogGen's Russian presence is in the corporate sector and 36% in the retail sector. Sovereign entities account for 21%, financial institutions - 4%.

Actual loans increased by 13.3% last year to 10.5 billion euros.

Societe Generale started doing business in Russia in 1872, then left the country in 1917, the year of the Bolshevik Revolution, to return in 1973. At the end of 2021, it had 1.5 million local customers.

In particular, the Russian division, for which an average of 1.05 billion euros of capital was allocated last year, brought a net profit of 115 million euros in 2021, compared with 37 million euros in 2020. Taking into account financial services, SG Russia's net profit amounted to 152 million euros against 76 million in 2020.

Nevertheless, the bank assured clients that it had taken measures to adapt to the new sanctions imposed against Russia and that its Russian division Rosbank continues to operate in a "safe manner".

UNICREDIT bank

The only Italian lender, which, according to regulators, is of global systemic importance, owns a subsidiary in Russia, which in turn ranks 14th among the largest banks in the country.

The equity capital of UniCredit Russia worth 2.3 billion euros is 3.7% of the total amount of the group's shares.

UniCredit's risks in case of default against Russia six months ago was worth around 14 billion euros: about 8 billion euros are loans provided by the Russian division and financed from local sources. The rest includes off-balance sheet items and cross-border loans, mainly provided by UniCredit SpA to large corporations outside Russia.

Last week UniCredit reported that its Russian franchise accounts for only about 3% of the group's revenue, and reserves cover 84% of bad loans, so the shareholders of this financial group feel safe for now.

INTESA SANPAOLO Financial and Industrial Group

Intesa Sanpaolo is little known to consumers, since its sphere is investment activity.

The company is active in Russia, where it has financed major projects such as the construction of the Blue Stream gas pipeline and the sale of a stake in the oil company Rosneft.

Intesa's credit risk in Russia at the end of 2021 was worth 5.57 billion euros (1.1% of the total amount).

Its subsidiaries in Russia have assets of 1 billion euros, respectively, and in Ukraine – three times less, which together makes up only 0.1% of the total assets of the group.

Intesa, Italy's largest bank, handles more than half of all commercial transactions between the two countries.

Dutch Bank ING

The institution has about 4.5 billion euros of outstanding loans to Russian clients and about 600 million euros of clients in Ukraine. The total loan portfolio in all regions is more than 600 billion euros.

Most of these loans are issued in euros and dollars, mainly project financing and secured loans, and in most cases loans and collateral are located outside of Russia or Ukraine.

ING reported that the company's interests were affected back in 2014 - after Russia's annexation of the Crimean Peninsula.

This is not a complete list of European public issuers that are somehow present on the financial market of Russia, so it is difficult to assess the cumulative economic damage that Europe will suffer due to the current sanctions.

At the same time, it is a fairly effective lever of influence on Russians. Probably, this is the method chosen by the European Union, despite possible losses on its part.