Wednesday, November 23, 2022

The Effects of the International Bank’s Being Exposed to Russia.

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What Is the International Banks Exposure?

The newest round of sanctions on Russia for its invasion of Ukraine has wreaked havoc on the global financial system. As a result, western countries strive to limit Moscow’s access to the money necessary for its economy and worldwide commerce.

Some Russian banks will be barred from accessing the SWIFT international payment services, while other penalties will prevent the central bank from using the country’s foreign reserves. The steps are intended to weaken Moscow’s capacity to withstand broader economic sanctions, but they also impact Western banks exposed to Russia’s economy.

And also, the European Central Bank, after such a run on its deposits prompted by the crisis, Sberbank’s European subsidiary, Russia’s largest lender, threatens to collapse.

According to the Bank of International Settlements (BIS), Italian and French banks had the most significant Russian exposure at the end of September, totaling slightly over $25 billion apiece, led by Austrian banks with $17.5 billion. According to BIS data, US banks have a total exposure of $14.7 billion. Most of the banks with considerable Russian exposure are listed below.

Which Are Exposed.

Let us see which banks from all over Europe have been exposed to Russia.

Raiffeisen Bank International (RBI).

RBI has had a presence in Russia since the disintegration of the Soviet Union, and its operations there accounted for about a third of the company’s total revenue of 1.5 billion euros last year. 

RBI’s Russian business has a capital base of 2.4 billion euros, accounting for 18% of the company’s total equity. It employs roughly 8,700 people and is Russia’s tenth-largest bank by assets.

At the end of last year, RBI’s total Russian exposure was 22.85 billion euros, with more than half of that pertaining towards the corporate, private sector.

The central bank of Russia accounts for 8% of the RBI’s exposure to the nation, while sovereign entities account for 4%. The total amount includes 11.6 billion euros in client loans (11.5 percent of the business), with more than 80 percent in rubles. 

With no parent funding from Vienna, cross-border exposure to Russia is merely 1.6 billion euros. The RBI holds 2.2 billion euros in liabilities to Ukrainian clients.

Societe Generale.

At the end of last year, Societe Generale, which owns Rosbank, had total exposure to Russia of 18.6 billion euros, or 1.7 percent of the group’s total assets.

Rosbank has more than 80% of its assets in the country. Or 15.4 billion euros, while its cross-border exposure is 3.2 billion euros. Including 600 million euros in off-balance sheet items.

The French bank began conducting business internationally in 1872. Departed in 1917, and returned in 1973. Said that its Russian operations accounted for 2.7 percent of the group’s net revenue in 2021.

It claimed last week that it could withstand a worst-case scenario in which its Russian company was seized. Which would only reduce its core capital by half a percentage point.

Retail accounts for 41% of SocGen’s Russian exposure, while corporate accounts for 31%. Exposure to Russian independent objects stands at 3.7 billion euros.

 Unicredit.

As of mid-2021, the Italian bank’s entire exposure to Russia was 14.2 billion euros. This includes 8 billion euros in liabilities from its Russian subsidiary.

The remainder consists of off-balance sheet items and cross-border loans, which UniCredit mainly provides to significant enterprises outside of Russia.

AO UniCredit Bank, a UniCredit affiliate, is Russia’s 14th largest bank. Its 2.3 billion euros in equity make up 3.7 percent of the company’s total assets. UniCredit would lose about 1 billion euros if the Russian company was written entirely down, reducing their core capital ratio by 35 basis points.

UniCredit stated that its Russian franchises accounted for less than 3% of total revenues and that provisions covered 84% of its non-performing exposures in the country.

Credit Agricole.

As of December 31, 2021, the French bank’s entire exposure to Russia was 6.7 billion euros or 0.6 percent of its total commercial loan portfolio onshore and offshore assets.

This includes 2.9 billion euros in offshore exposure to 15 significant Russian corporations, primarily commodity producers and exporters.

Credit Agricole has two wholly-owned subsidiaries in Ukraine and Russia. Crédit Agricole  Ukraine has a stake in the company worth 226 million euros. CACIB AO, a branch of Crédit Agricole CIB, has a capital of 150 million euros. Credit Agricole said it was actively monitoring its Russian exposures, but there would be no impact on its dividends in 2021.

Intesa Sanpaolo.

Major investment initiatives in Russia, such as in the Blue Stream gas pipeline and the sale of a share in the oil company Rosneft, have been backed by Italy’s largest bank. As a result, more than half of all economic transactions between Italy and Russia are handled through it.

At the end of 2021, Intesa’s loan exposure to Russia was 5.57 billion euros or 1.1 percent.

Its Russian and Ukrainian companies have 1 billion and 300 million euros, respectively, representing less than 0.1 percent of the group’s overall assets.

ING.

Out of a total loan book of more than 600 billion euros, the Dutch bank has roughly 4.5 billion euros of outstanding debt with Russian customers and another 600 million euros with Ukrainian clients.

According to ING, several sanctions on Russia have been in effect since 2014.

Banks in the USA Which Are Exposed.

Namely, there’s only one bank in America exposed to Russia, and here are its details.

Citigroup Inc.

On Monday, the American bank revealed that its entire exposure to Russia was roughly $10 billion.

Citigroup ranked Russia as number 21 and among the top 25 nations with exposures, with $5.4 billion in loans, securities, and financing obligations by 2021, accounting for 0.3 percent of total openness.

Citigroup provided new facts on Monday, bringing the total “total third-party exposure” to $8.2 billion. This comprises $1.0 billion in cash and $1.8 billion in reverse reports at the Bank of Russia and other financial institutions.

Citigroup also disclosed that it had $1.6 billion in additional Russian counterparty exposures outside of its Russian business, not included in the $8.2 billion figure. In addition, in a recent filing, Goldman Sachs Group Inc. disclosed a net exposure to Russia of $293 million and a total market exposure of $414 million as of December 2021.

Other Bank Exposures.

According to its most recent disclosure, Goldman Sachs Group Inc. (GS.N) disclosed $293 million in net exposure to Russia and a total of $414 million in market exposure as of December 2021.

Bank of New York Mellon Corp (BK.N) stated that it had less than $100 million in Russia exposure.

In their most recent disclosures, JPMorgan Chase & Co. (JPM.N), Bank of America (BAC.N), and Wells Fargo & Co., which make up the top four largest U.S. banks, did not identify Russia among the top 20 nations where they have the highest exposure.

Due to their vast worldwide revenue exposure, Citi, JPMorgan, and trust banks like State Street Corp (STT.N) might face that type of effect, according to Usdin.

Banks in Asia Which Are Exposed to Russia.

There are also a couple of countries that are affected by being exposed to Russia,

Banks in Japan.

At $190.2 million, Mitsubishi UFJ had the most significant Russian earnings of the Japanese companies, led by Mizuho at $120.5 million and Sumitomo Mitsui at $24.5 million.

Even though Moscow’s 2014 takeover of Crimea prompted Western European banks to cut back on lending to Russia, the trio’s outstanding debts to Russia have plummeted. From 1.6 trillion yen in March 2014, the total has dropped to 539.1 billion yen ($4.69 billion).

However, 500 billion yen is more than 20% of the megabanks’ estimated net profit for this month’s fiscal year. While not all of this will need to be wipe off, banks will need to put aside reserves if debtors’ credit scores deteriorate too much.

The lending climate is increasingly deteriorating. On Friday, S&P Global downgraded Russia’s foreign-currency government debt from BBB to BB+ or junk status. The ratings of Russian debt have been reviewed by Moody’s Investors Service, which may result in a downgrade. Though a country’s finances are not inextricably tied to the health of its businesses, Russia’s growing country risk, especially the barring of major financial institutions from the SWIFT global payments network, raises the probability of some debt default. A senior executive of a Japanese megabank has indicated that fresh funding in the nation is effectively halte. Right now, we can’t transfer any more money to Russia, “the executive stated.”

In reaction to media claims, the Japan Bank for International Cooperation, which has invested alongside private-sector organizations in Russia’s energy industry, says it is gathering facts. Europe and Japan rely on Russian liquefied natural gas and crude oil imports, which might threaten Japanese firms’ profitability if energy costs rise.

Banks in Singapore.

Singapore’s banks indicated on Tuesday (Mar 1) that their exposure to Russia is modest after Foreign Affairs Minister Vivian Balakrishnan’s announcement that Singapore will impose sanctions on Russia for its invasion of Ukraine.

Export limits on things that can be use directly as weapons in Ukraine will be implemente, as will the barring of specific Russian institutions and financial activities linked to Russia.

According to a DBS spokeswoman, the bank would abide by all applicable fines. “We have low direct exposure to Russia and, by our risk management duties, have reduced our appetite for transactions that consume Russian exposure limitations,” the representative stated.

According to OCBC’s head of group marketing and communications, Koh Ching Ching, the bank’s exposure to Russian firms is “not considerable.”

“We do most of our business in Asia, and our overseas operations mostly support our network clients,” she noted.

According to a spokeswoman, UOB has “no direct exposure” to Russian banks due to its concentration on Southeast Asia. “We have already advised a small number of our clients with trade flows that may be affecte. By prospective penalties to handle their exposure accordingly,” the statement continued. The Monetary Authority of Singapore (MAS) said it had written a circular to all financial institutions in Singapore. Reminding them to manage risks linked to the crisis in Ukraine and the sanctions imposed by key jurisdictions in response to CNA inquiries.

According to the MAS spokesman, financial institutions should also continue to be attentive to any unusual transactions. Movements of funds and conduct heightened customer due diligence in higher-risk cases. “FIs are aware of the increased risks and are taking proper steps to control any legal, reputational, or operational concerns emanating from various governments’ sanctions.”

Banks in South Korea.

According to The Korea Herald, which cited a person familiar with the situation. South Korea’s financial authorities have begun writing contingency plans to deploy resources and instruments. Including market stabilization funds. To calm the market if the current crisis impacts it.

And to The Korea Times, South Korean lenders KEB Hana Bank and Woori Bank are preparing contingency. Plans for the potential impact of recent Russian sanctions on their operations. As a result, their loan exposures, mainly in the third quarter of 2021, were estimated to be 296 billion won and 266.4 billion won, respectively.

Banks in China.

According to Bloomberg News, which cited anonymous sources, the Industrial & Commercial Bank of China Ltd., ICBC, and Bank of China Ltd. have blocked funding for Russian goods in response to Russia’s military activity in Ukraine. ICBC has ceased providing US dollar-denominated letters of credit to acquire actual Russian commodities ready for export. The Bank of China has slowed lending based on its risk assessment while waiting for the Chinese. Regulators to provide instructions on Russia according to the news portal. The two lenders and the China Banking and Insurance Regulatory Commission did not initially reply to calls for comment.

Disclosure.

These are purely the opinions of the author base on observations and analysis of financial platforms. And a study of public reviews and ratings of the European and American banks that were exposed to Russia and are being affected. Excerpts from various sources have been using to clarify the facts in this article. A glossary of all the sources used can be found at the end of the article. This article is for educational purposes only and is not financial advice.

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