Pressures On Banks Persist Alongside Russia-Ukraine War
Today is?Wednesday, May 25, 2022, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global. Subscribe?to be notified of each new?Daily?Update.?
Banks across Europe and Asia are continuing to confront pressures from their exposures to Russia as the war in Ukraine rages on.
Following the sanctions imposed in 2014 in response to Russia's annexation of Crimea, global banks have since significantly trimmed their direct exposure in monetary terms and as a proportion of total assets to the former Soviet superpower. Any remaining exposures were?additionally and notably constricted ?by the international community’s coordinated response to Russia’s invasion of Ukraine, which spurred companies across a plethora of industries to?cease their operations ?in Russia. But?the deep interconnectedness of the global financial system ?and the confluence of risks from inflationary pressures and slowing macroeconomic activity that have expanded since the war began on Feb. 24 are compounding challenges for banks near to and far from the conflict.
At the epicenter of the crisis, Ukraine's banking industry has recorded?meaningful losses and elevated loan-loss provisions ?as Russia's invasion weighs on lenders and credit conditions, according to S&P Global Market Intelligence.?
As more sanctions emerge and the conflict continues, "ultimately, Russia is likely to see its financial system?backed by commodity collateral ," Alan Struth, manager of macroeconomics and oil demand for global oil at S&P Global Platts Analytics, said this week. "Its currency will be formally backed by commodity exports and transactions."
For?European banks , the war in Ukraine?poses downside risks , from the potential for a curtailment of Russian energy supplies to Europe triggering a further energy price shock and supply chain disruptions, persistently high inflation reducing corporate and household debt-servicing capacity, and the risk of a wholesale market repricing that widens credit spreads and hurts weaker sovereigns, corporates, and banks, according to S&P Global Ratings.
“European banks?can manage the economic spillovers ?from the Russia-Ukraine conflict under our base case that envisages business disruptions in certain corporate sectors and reduced but still positive economic growth in 2022,” S&P Global Ratings said in recent research. “It's undoubtedly a trickier and more uncertain macroeconomic environment than we had envisaged at the start of 2022, and as a result we expect European banks will see lower loan and business growth, as well as a limited uptick in costs. But we do not see these effects as likely to significantly test our view of the creditworthiness of most European banks.”
Across Asia, Japanese megabanks have?reduced their Russian exposure ?to protect provisions against the potential bad loans, while Armenia’s strong economic ties to Russia?could exacerbate risks to its banking system .
And worldwide, financial institutions without any exposure to Russia still face indirect risks of violating sanctions?due to the correspondent banking services ?they provide, according to S&P Global Market Intelligence.?
Today is?Wednesday, May 25, 2022, and here is today’s essential intelligence.
?Written by Molly Mintz.?
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