ECB Stress-Tests Banks’ Russia Exposure as Putin Pushes Ukraine
ECB is telling lenders in Russia to report on risks faced from diplomatic and military scenarios related to Moscow’s tensions.
(Bloomberg) -- The European Central Bank is telling lenders active in Russia to report on the risks they face from a range of diplomatic and military scenarios related to Moscow’s tensions with the West over Ukraine, according to people familiar with the matter.
The Frankfurt-based ECB is working with banks to assess risks to their liquidity, loan books, trading and currency positions as well as their ability to keep operations running, said the people, who asked to remain anonymous as the discussions are private. The regulator, in touch on a daily basis in some cases, wants lenders to assess scenarios including severe economic sanctions as well as the real-world consequences of an invasion, they said.
Tensions have soared as Russian President Vladimir Putin has massed troops on Ukraine’s border and recognized two self-proclaimed separatist republics in the east of the country as independent. Warning of an imminent invasion, Western nations have enacted a first wave of sanctions and threatened further economic penalties, raising the prospect of severe disruptions for financial institutions. Moscow denies having plans to invade.
The ECB is monitoring the situation and is in close contact with banks as well as national regulators on potential risks that may arise from an escalation of the conflict, according to a spokesman. While euro area banks differ in the extent of their exposure to Russia, it appears contained overall, he said.
While several international banks have dialed back their operations in Russia in recent years, Societe Generale SA, UniCredit SpA and Raiffeisen Bank International AG are still among the largest European banks in the country, according to data from the European Banking Authority.
The ECB and banks are still analyzing the effect of sanctions that are being put in place, said the people. The central bank had already identified the lenders most exposed to Russia and Ukraine and is looking at potential sources of risk, said the people.
The banks are continuing to plan their response if sanctions are imposed on a wider range of Russian companies and financial institutions as well as big hits to the country’s economy and currency, said the people.
That could play out with losses on loans to companies and individuals affected by resulting turmoil or hits to the stocks and bonds that banks trade, said one of the people.
Earlier this month, Austria’s Raiffeisen said it made provisions of 25 million euros ($28.2 million) for geopolitical risk in Ukraine and 21 million euros for sanctions in Russia.
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