(Repeat for additional subscribers)
April 1 (The following statement was released by the rating agency)
Austrian banks are most exposed to Russian risk through their local subsidiaries, Fitch Ratings says. European banks have greater direct exposure to Russia than US and Asian lenders but the amounts are generally manageable.
International bank direct claims on Russia were USD242bn at end-3Q13, with just over three-quarters (USD184bn) relating to European banks, according to the latest data from the Bank for International Settlements published 9 March. North American banks made up 16% of the exposure, while Asia-Pacific bank positions were only 7%.
In Europe, we estimate around 60% of the bank claims on Russia to be from their Russian subsidiaries, so these would be in-country claims. While the developments so far may put pressure on earnings at Russian operations, they are typically locally funded. We estimate that only around USD8bn is funded cross-border by parent banks. This funding could increase if sanctions intensify and liquidity tightens, but slower economic growth and pressure on the rouble are more immediate risks.
Austrian banks have the greatest exposures relative to equity given their expansion into central and eastern Europe. Raiffeisen Bank International's Russia exposure at around EUR20bn is 2.2x its Fitch Core Capital (FCC), adjusted for the EUR2.8bn rights issue completed in February. 76% stems from its Russian subsidiary and the remainder is cross-border exposure. It had also put the sale of its Ukraine subsidiary on hold. Adding Ukraine and Russia risk together pushes the exposure up to almost 2.8x FCC, which is high.
RBI has increased its reliance on Russia for earnings generation. Russia accounted for 21% of operating revenues and 74% of pre-tax profit in 2013.
Profitability from these operations is likely to be lower in 2014 in light of the crisis, making the recovery of the group's other CEE markets even more important. The depreciation of the rouble, hryvnia and other currencies in the year to 11 March eroded RBI's common equity Tier 1 ratio by around 25bp, according to the bank.
Another Austrian bank, UniCredit Bank Austria, also has a Russian subsidiary, with assets equivalent to 1.2x the bank's FCC. But ultimately the risk falls to Italy's UniCredit and the EUR18bn exposure (which however excludes cross-border exposure) is a relatively small 40% of the group's FCC. Even if Ukraine is added, this would still be just under half of FCC. We believe most of Italy's USD30bn bank claims to Russia are in-country exposures.
In contrast, part of France's USD50bn bank claims to Russia is likely to be cross-border lending to corporates, in line with the largest banks' corporate franchises. However, we believe around 60% relates to Russian subsidiaries of major French banks. Societe Generale has EUR14bn of retail loan exposure through its subsidiary Rosbank and its affiliates, only 43% of FCC. BNP Paribas and Credit Agricole have very small subsidiaries in Russia.
US banks had USD37bn of direct claims on Russia, a very small amount for the sector. Citigroup has a Russian subsidiary, but the USD10bn of assets are less than 10% of FCC, so very small. There may be other claims, such as guarantees and derivatives, not captured in this data that could be larger at some US investment banks. However, these would still be small relative to assets. Banks in Asia-Pacific do not have material exposures mainly because they tend to be domestic or regionally focused.
Fitch discussed how the crisis in Ukraine is likely to affect Russia and entities that operate in, or have exposure, to Russia on 25 March in a teleconference. A replay is available at www.fitchratings.com, under Fitch Events >Past Events.