Russian banks which lent to Ukraine companies at risk-Fitch

Tue Feb 25, 2014 11:18am EST

* Russian banks Ukraine exposure around $28bln -Putin

* Risks mainly due to loans to local companies - Fitch

* Exposure may impact solvency, may need support - Fitch

By Megan Davies

MOSCOW, Feb 25 (Reuters) - Russian banks which made loans to Ukrainian companies or businessmen who bought assets there are at risk if the country's economy falls into recession or the currency devalues, Fitch credit rating agency said on Tuesday.

Ukraine this week appealed for $35 billion over two years to hold up its economy following the ouster of President Viktor Yanukovich. Its economy flatlined in 2013 and the hryvnia currency has fallen 8 percent in three months.

Russian banks have around $28 billion of exposure in total to Ukraine, President Vladimir Putin said in November, naming Gazprombank, Vnesheconombank (VEB), Sberbank and Bank VTB as creditors.

Banks' exposure may "materially impact the solvency of some institutions" if borrowers suffer as a result of economic stress, Fitch said.

"By solvency we mean that in the worst case scenario some of these banks may (require) support," Alexander Danilov, senior director of financial institutions at Fitch in Moscow told Reuters.

If the borrowers face problems, the subsidiary banks may need to be supported by the parents, which in turn may need support from the Russian government, he said.

Danilov said that he expected the government would help in such a case, partly due to government ownership levels in Russian banks and their systemic importance.

Fitch said the risks Russian banks face relate primarily to loans to local companies - which account for more than half of the total exposure - and to Russian and Ukrainian businessmen who borrowed funds to buy Ukrainian assets.

"The sectors (in which the risks are present) would reflect the Ukrainian economy," Danilov said, adding this has a large share of metals and mining companies, as well as machinery and chemicals firms.

State development bank Vnesheconombank's (VEB) Ukrainian subsidiary has assets of around $5 billion, Fitch said, or 29 percent of its parent's equity.

Gazprombank has the second largest exposure relative to its capital, Fitch said, including a loan to Ukrainian oil and gas company Naftogaz which is secured on payments from Russian gas firm Gazprom.

VTB's risks are mainly from its local subsidiary, Fitch said, while for Sberbank the problem is manageable because its local subsidiary is relatively small.

Rival credit rating agency Moody's on Monday said that Russian banks could easily absorb any credit losses stemming from Ukraine's crisis from their earnings this year.

German Gref, chief executive of Sberbank, said in December the bank would be able to absorb losses in Ukraine thanks to its strong capital base.

Sberbank had exposure of 130 billion roubles ($4 billion) to Ukraine - or less than 1 percent of its balance sheet of $460 billion - at the end of the third quarter.

Gref said on Friday the bank had temporarily suspended some lending in Ukraine, but did not intend to exit the market.

VTB said in December it had made adequate provisions against its risks in Ukraine. Its exposure consisted of a bilateral loan and purchases of market instruments, it said, and it was cited by Gazprombank analysts as saying its sovereign debt exposure was limited to 20 billion roubles ($562 million). On Monday it said its bank in Ukraine was operating normally.

Russia's state development bank, VEB, said in December its own loan exposure in Ukraine was nearly $4 billion, mostly through subsidiary Prominvestbank. It said on Monday it had no plans to exit Prominvestbank and was providing the bank with necessary liquidity support.

Gazprombank did not respond to a request for comment on Monday. (Reporting by Megan Davies. Editing by Jane Merriman)

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