Nordic Banks’ Baltic Operations: Contained Risks From The Invasion of Ukraine

DBRS Morningstar has released a commentary which analyses the data related to the Baltics operations of the major Nordic Banks in order to understand the possible implications of a deterioration of the macroeconomic outlook in the Baltic countries following Russia’s invasion of Ukraine.

Key highlights include:
• Among the large Nordic Banks rated by DBRS Morningstar, Swedbank AB (Swedbank) and Skandinaviska Enskilda Banken AB (SEB) have the largest exposure towards the Baltics.
• While the outlook remains very uncertain for the economic recovery of the three Baltic countries, DBRS Morningstar considers the impact on both Swedbank and SEB’s Baltic operations could be mitigated by their significant loss absorption capacity.
• The Nordic Banks have been historically more reliable on market funding than most of their European peers. However, the Baltic divisions of both Swedbank and SEB are self-funded thanks to their large customer deposit base, and would likely benefit from a flight to quality during a crisis.

“We note that operational risk in the Baltic banking sector has been high in the past, mainly around money laundering concerns and could return to the spotlight. However, this could be mitigated by the fact that both Swedbank and SEB continued to invest heavily in order to strengthen the resilience of their AML/compliance and technology resources in the Baltics, which have been under heightened scrutiny from both local and foreign supervising authorities.“, said Mario De Cicco, Vice President, Global Financial Institutions at DBRS Morningstar.