UPDATE 3-Russia's largest banks halt new loans in Ukraine eyeing political risk
* Russian banks have $28 bln of exposure to Ukraine
* VTB, Sberbank suspend new loans
* Rating agencies see risks of exposure, say Russian banks can manage
By Megan Davies
MOSCOW, Feb 26 (Reuters) - Russia's second-largest bank VTB has joined Sberbank in saying it would halt new lending in Ukraine, underlining concerns over financial risks due to political turmoil in Kiev.
Ukrainian President Viktor Yanukovich was driven from power over the weekend after months of upheaval sparked by his decision to spurn deals with the European Union and improve ties with Russia. While the country has an interim leader, a new government is yet to be formed.
"It is hard to evaluate the risk at the moment," VTB Chief Executive Andrei Kostin said at a press conference on Wednesday.
While other foreign lenders have cut their Ukraine exposure in the five years since the 2008 collapse of Lehman Brothers - to 20 percent of Ukraine banking sector assets in 2012 from 40 percent in 2008, according to a Raiffeisen Research survey - Russian banks stayed. They now account for 12 percent of the sector..
Russia's President Vladimir Putin said that Russian banks have an estimated $28 billion of exposure to its neighbour, with Gazprombank, Vnesheconombank (VEB), Sberbank and VTB among the main creditors.
Ratings agencies Moody's and Fitch this week cautioned of the risks these banks faced in their loans to Ukrainian businesses if the economy slides into recession and the currency continues to plummet.
Kostin said the bank had stopped issuing new loans. VTB later clarified that the bank was no longer issuing new loans to either companies or individuals.
The move followed a similar statement from German Gref, head of Russia's largest bank Sberbank, who said on Friday that the bank had temporarily suspended lending, although the bank would continue to extend credit to large enterprises whose financial condition was sound.
Credit agencies have rung warning bells over the exposure of Russia's banks, but they also reassured that they should be able to cover any losses with their earnings or be propped up with government support.
Fitch on Tuesday said that Russian banks' exposure may "materially impact the solvency of some institutions" if borrowers suffer as a result of economic stress. But the agency expects the Russian government would step in, partly due to government ownership levels in those banks.
Rival agency Moody's said earlier in the week that while Russian bank exposure to Ukraine was significant, it remained manageable and that Russian banks could easily absorb any credit losses due to Ukraine's crisis from their earnings this year.
In a separate warning, the U.S. Treasury advised banks on Tuesday to look out for potentially suspicious transfers of financial assets by Yanukovich, who is in hiding, or members of his inner circle.
EXPOSURE IN BILLIONS
VTB has said it has exposure to Ukraine of 20 billion roubles ($560 million), which Kostin said was largely through big private companies, some of which are exporters.
The bank's business in Ukraine amounts to about 2-3 percent of total operations, Kostin said, adding the bank aimed to stay in Ukraine for the long term.
"We hope the situation will stabilise soon," Kostin told reporters.
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, of Sberbank, said in December the bank would be able to absorb losses in Ukraine thanks to its strong capital base.
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.
Austria's Raiffeisen Bank International, which has credit exposure to Ukraine of 5.8 billion euros, or 3.5 percent of its total, declined to comment on the situation in the country as it was in such flux.
Other foreign banks in Ukraine have been taking precautions to buffer themselves. Hungary's OTP Bank, whose subsidiary in Ukraine is one of the bank's main avenues for growth, told Reuters on Wednesday that it was prepared for a devaluation of the Ukrainian hryvnia.
"OTP Bank Ukraine has consciously prepared for a devaluation of the hryvnia," the bank said in an emailed statement. "For the bank's open foreign currency positions and loans the course of the exchange rate is a predictable and managed risk."
VTB's shares closed 1.3 percent lower on Wednesday, underperforming the broad MICEX index which ended 0.6 percent lower.
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