LONDON
\nLarge western European banks\u2019 asset quality will be pressured by the fallout from Russia\u2019s invasion of Ukraine, although high levels of pre-impairment operating profit should mitigate this impact, Fitch Ratings said.
\nIn a report on Thursday, Fitch Ratings said the banks also face materially increased operational risk. They must ensure their operations are compliant with international sanctions against Russia, and their ability to manage Russian exposures, including in their trading books, will be affected by the sanctions. Any severe hit on economic growth from the war in Ukraine will weaken the banks\u2019 business and financial prospects.
\nWestern European banks had about US $91 billion total claims on Russian counterparties at end-September 2021, according to the Bank for International Settlements (BIS). Of this, USD41 billion related to local positions in local currencies, mainly exposures held by Russian subsidiaries of foreign banks.
\nExposure to Ukrainian counterparties was much lower, at below USD9 billion, and mainly from Austrian and French banks. Of the large French banks, BNP Paribas and Credit Agricole are the most exposed to Ukraine due to their local retail banking subsidiaries. The impact on these two groups\u2019 asset quality will be limited given the modest size of the exposures and the self-funded status of the subsidiaries. However, the exposures are likely to generate higher loan impairment charges in 2022, denting the groups\u2019 operating profits, said the report.
\nItalian and French banks had the largest cross-border exposure to Russian counterparties, at about USD15 billion and USD10 billion, respectively, at end-September 2021, according to BIS data. All other western European banks had a combined exposure of about USD17 billion, said Fitch Ratings.
\nEuropean banks\u2019 exposures are mainly held through corporate and investment banking operations, and investment portfolios. The credit quality of these exposures is likely to deteriorate sharply, particularly for the counterparties most affected by sanctions. This could lead to material increases in loan impairment charges at some of the banks, but the impact should be cushioned by the banks\u2019 large pre-impairment profits. Some of the exposure will also benefit from collateral or export credit guarantees.
\nSociete Generale and UniCredit are the two Fitch-rated European banks with the largest operations in Russia. However, the local Russian exposures are small relative to the parent groups, accounting for less than 2% of total exposures in each case. Most of the Russian exposures relate to the banks\u2019 local retail and commercial banking operations.
\nThe capitalisation of banks with Russian subsidiaries will also be affected by the depreciation of the ruble. \u201cHowever, we expect that most of the banks largely hedge the foreign-currency risk to avoid large swings in consolidated capital ratios,\u201d said Fitch.<\/p>\n","protected":false},"excerpt":{"rendered":"
LONDON Large western European banks\u2019 asset quality will be pressured by the fallout from Russia\u2019s invasion of Ukraine, although high levels of pre-impairment operating profit should mitigate this impact, Fitch Ratings said. In a report on Thursday, Fitch Ratings said the banks also face materially increased operational risk. They must ensure their operations are compliant […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-247526","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-business"},"yoast_head":"\n