Banks are starting to estimate the impact of the sanctions and market dislocations hitting Russia following its invasion of Ukraine.
Italy's UniCredit and France's BNP Paribas have sought to calm investor’s nerves about exposures to Russia. The banks have set out the billions of euros in potential hits they could take because of the financial turmoil following Russia’s invasion of Ukraine.
So far this week UBS, the world’s largest wealth manager, has detailed exposures and other banks are starting to outline potential losses. With the season for annual general meetings gearing up, the details could make for difficult reading for shareholders.
BNP Paribas said in a statement yesterday that “gross exposures off- and on-balance sheet on Ukraine and Russia are limited.” In Ukraine, the exposures were 0.09 per cent of group total commitments (€1.7 billion ($1.8 billion)) and for Russia, 0.07 per cent (€1.3 billion), a total of about €3 billion overall. “Considering the way BNP Paribas operates in those two markets and secures its activities with guarantees and collaterals at a high level, the net residual combined exposures of BNP Paribas for Russia and Ukraine stand at around €500 million,” the Paris-listed group said.
In the case of UniCredit, the lender said a full write-off of its Russian business would cost around €7.4 billion, according to a Reuters report yesterday. (This specific total figure did not appear in UniCredit’s account and appears to be a calculation based on its financial statement yesterday.)
“In the extreme scenario, where the entirety of our maximum exposure…is non-recoverable and zeroed, the impact on UniCredit's 2021 year end CET1 ratio (15.03 per cent inclusive of €1.2 billion accrued dividend) would be around 200 basis points. Our strong capital position would allow us to absorb such impact without falling below 13 per cent CET1.” (This refers to the Common Equity Tier 1 ratio, a standard international measure of a bank’s capital buffer.) “Whilst we do not consider this extreme scenario as our base case, we are taking a prudent and sustainable approach to our distributions,” it said.
The Italian group said UniCredit Bank Russia had a self-funded loan position at 2021 year end of €7.8bn, risk-weighted assets of €9.4 billion and equity of €2.5 billion. Net of foreign currency hedges, UniCredit said its “direct exposure” to UniCredit Bank Russia falls to around €1.9 billion.
Further, UniCredit said Russian client cross-border exposure is around €4.5bn, net of guarantees of around €1 billion by non-Russian state export agencies, and accounts for around €3 billion of risk-weighted assets. The exposure is almost entirely to leading Russian multinational corporations and mostly in euros and US dollars, with contracts governed by international laws and subject to international courts of law.
The bank said counterparties hit by sanctions in place represent less than 5 per cent of the total cross-border exposure. The main sector exposures of the portfolio are around 30 per cent to oil and gas, around 20 per cent each to transport, and machinery and metals, around 10 per cent to chemicals, around 8 per cent to financial institutions, with the balance to a mix of other sectors.
Reuters noted that among European banks, Austria's Raiffeisen Bank International and France's Societe Generale have the largest Russian exposure.
The potential blows are particularly unwelcome for banks hoping that expected higher interest rates would allow them to repair margins after more than a decade of ultra-low rates.