The rating agency warns of the consequences of the Russian war of aggression for banks.
(Photo: Reuters)
Frankfurt The protracted war in Ukraine has increasingly serious economic consequences for international banks. Although the direct consequences of the Russian attack on the smaller neighboring country are limited, the rating agency Moody’s warns that the indirect effects are becoming increasingly dangerous.
These second-round effects include rising inflation rates from a supply shock in commodity prices and a severe slowdown in economic growth. According to Moody’s estimates, global growth will slow down to 3.6 percent this year. The rating agency’s original estimate was 4.3 percent.
According to credit rating officers, banks from countries in the immediate vicinity of Russia and Ukraine are particularly at risk. Institutes from the Baltic States and the countries of the former Soviet Union, today’s Commonwealth of Independent States, face the greatest shock. According to a current study by Moody’s, these financial institutions were not only hit hardest by the economic second-round effects of the war, they also only had “limited safety buffers to absorb longer-lasting disruptions”.
According to the rating agency, Latvia, Lithuania and Estonia are very vulnerable to shocks from rising commodity prices, higher interest rates and a recession in Russia. The banks would feel this through higher loan defaults and the associated provisions.
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The Baltic States are particularly at risk from price increases because inflation rates are already very high. In Lithuania, inflation was last at 13.5 percent, in Estonia at 12.4 percent and in Latvia at over eight percent.
Western banks are also coming under pressure
Because of the close economic ties with Russia, Moody’s also sees dangers for the banks in the Commonwealth of Independent States. This is especially true in Belarus, Azerbaijan, Georgia and Armenia, where the use of the US dollar is widespread. An abrupt devaluation of domestic currencies could leave many creditors unable to repay their foreign currency loans, Moody’s warns.
The consequences of the Ukraine war also pose considerable problems for some large Western banks. This applies above all to institutes with a strong exposure to Russia, such as Austria’s Raiffeisen Bank International (RBI), Italy’s Unicredit and France’s Société Générale. All three institutes are now calculating what a complete loss of their Russian activities would cost.
Société Générale and Unicredit share prices have each fallen 35 percent in the past three months. The value of the RBI even collapsed by 57 percent.
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