European Banks’ Direct Exposure to Russia and Ukraine Is Manageable, But Risks Have Increased

DBRS Morningstar has published a commentary highlighting European banks’ exposure to Russia and the impact of Russia’s invasion of Ukraine on European banks.

Key highlights include:

• The impact on European banks from the Russian invasion of Ukraine will largely depend on the duration of the conflict and the impact on European economies.

• Most European banks have been reducing exposure to Russia since the 2014 Crimean invasion.

• Overall, European banks’ direct exposures to Russia, either through their banking subsidiaries in Russia or cross border exposures, seem manageable.

• However, the conflict has increased credit and market risk for certain banks as well as operational risk for the European banking sector as a whole.

“Overall, European banks’ direct exposure to Russia seems to be broadly manageable although we expect banks with meaningful exposures to be affected by lower revenues and higher provisions. Also, many banks will further reduce or exit their presence in Russia given the challenges of operating there. Moreover, the operating environment has become increasingly challenging for European banks as a whole with heightened volatility for raw materials and the broader weakening economic prospects for European countries, which could translate into the need for European banks to book higher provisions.” said Maria Rivas, Senior Vice President, Global Financial Institutions at DBRS Morningstar.