European banks lose nearly US$10 billion as Russia pulls out

Bloomberg — European banks are calculating the Rising Costs of the Russian Invasion of Ukraine as war drives up commodity prices and disrupts companies’ supply chains.

led by Societe Generale S.A. (SCGLY) and UniCredit SpA (UCG), the lenders of the region they have pointed out that so far they are losing about US$9.6 billionmainly for reducing the value of its operations in the region and setting aside money as a shield against the expected economic ramifications. The last banks to join the account, ING Groep NV (INGA) and Intesa Sanpaolo SpA (ISP), reported Friday that exposure to Russia reduced combined first quarter net income by nearly $2 billion.

For years, Europe’s banks benefited from rapid growth in Russia, but staggering costs now mean many lenders consider that it is no longer worth doing business in the most sanctioned country in the world. several more too They warned that they may have to scrap their outlook for the year if the drag on the global economy from the war worsens. In this way, Intesa cut its profit target for 2022 and warned that a “very conservative” scenario sees an even harder hit.

Faced with this extreme uncertainty, chief risk officers of several major European lenders are holding meetings with each other and with regulators to discuss the reliability of their models and provisioning, according to people familiar with the matter. A regulatory official, who spoke on condition of anonymity, said banks are likely to hold more funds in coming quarters.

Corporate insolvencies in our markets are likely to increase” this year due to rising energy prices, high inflation and supply chain disruptionsthe CEO of Commerzbank AG (CBK) said on Friday, Manfred Knof. The German lender’s current outlook for the year assumes “limited” economic fallout from the Ukraine war, he said.

The deteriorating environment means that European banks have wanted to highlight their resilienceY UniCredit it said Thursday that it can absorb the macroeconomic effects of the war on its broader business thanks to its “strong” capital levels, asset quality and prudent loan-loss provisions. The Milan-based lender, one of the European banks with the largest presence in Russiahad a loss of 1.85 billion euros ($2 billion) related to the country as it assesses its exit.

So far, most of lenders see a full-blown economic crisis triggered by the war as a remote risk. Deutsche Bank AG (DB) said that considers it to be an “unlikely negative case” that supply chain bottlenecks translate into losses, while Societe Generale’s central scenario is a “soft landing” of the European economy, CEO said Frédéric Oudea on BloombergTV.

Last month, the French bank agreed to sell its unit Rosbank PJSC (ROSB) to the investment firm of Vladimir Potanin, Russia’s richest man, taking a loss of about $3 billion euros ($3.173 million) to get out. Oudea said Thursday that she would be reflected in second-quarter results.

Various European banksincluding UniCredit and Commerzbank, they used the first quarter to add an extra layer of cash to their credit provisionsknown as “superposition”, to cushion a potential deterioration in the economic environment rather than actual impairments in the loan portfolio. That raised the amount banks set aside for bad loans to the highest level since the start of the Covid-19 pandemic in 2020.

credit riskdfd

The Banks are also putting pressure on customers and digging into their balance sheets to see which ones may have trouble paying. loans as the fallout widens. Raiffeisen Bank International AG (RBI), a large lender in Eastern Europe and one of the largest foreign banks in Russia along with UniCredit, highlighted $1,800 million euros (US$1,904 million) of exposure to auto parts and equipment and $€1.2 billion (US$1,269 million) related with the chemical and fertilizer industry as the highest risk.

Meanwhile, the banks remain divided on whether to leave Russia altogether. UniCredit and Austria’s Raiffeisen are still weighing their options, with Raiffeisen saying on Wednesday it has received interest from parties looking to buy its Russian business. Lenders with smaller outposts are already closing in the country.

-With the assistance of Caroline Connan, Alexandre Rajbhandari, Marton Eder and Sonia Sirletti.

This article was translated by Miriam Salazar

Leave a Comment