* Central bank, low on reserves, urges calm
* Crowds protest at rejection of EU deal in favour of closer
* Scant prospect of additional financial aid
* No run on deposits, clients buy forex - bankers
By Michael Shields and Douglas Busvine
VIENNA/MOSCOW, Dec 3 The political crisis in
Ukraine, sparked by an East-West power struggle in which Moscow
has gained the upper hand, is increasing the risk to the
country's financial system and creating a particularly acute
headache for Russian banks.
As crowds took to the streets to protest after President
Viktor Yanukovich rejected a trade and cooperation deal with the
European Union last week in favour of closer ties with Russia,
its rattled central bank, low on reserves, appealed to people
not to pull their deposits from the banks.
Ukraine seems to have little immediate prospect of
additional financial help to meet its big external deficits and
financing needs, making it even less attractive to the foreign
banks that flocked there before the 2008 collapse of Lehman
Brothers triggered the worst of the global financial crisis.
While other foreign lenders have cut their Ukraine exposure
in the five years since - to 20 percent of Ukraine banking
sector assets in 2012 from 40 percent in 2008, according to a
Raiffeisen Research survey - Russian banks have maintained a
strong market presence, still accounting for 12 percent.
Among foreign banks, the Russians have easily the biggest
exposure, more than twice that of Austrian lenders, the next
In a credit outlook note this week, ratings agency Moody's
cited Russian President Vladimir Putin as saying Ukrainian
borrowers owed around $28 billion to four Russian banks and
named Gazprombank, Vnesheconombank (VEB), Sberbank
and Bank VTB as creditors.
"We estimate that these banks' exposure to Ukrainian risk is
$20-$30 billion, a sizeable amount indeed, considering that
their combined Tier 1 capital was $105 billion in June," Moody's
Moody's, which estimated that 35 percent of all bank loans
in Ukraine were problem loans, said the country's severe
economic problems would keep local borrowers under pressure and
could result in higher loan losses for the Russian lenders.
In the absence of the association agreement with the
European Union, Russian-Ukrainian trade is likely to rise, and
the four big Russian banks may well increase their exposure to
Ukraine, it added.
Ekaterina Trofimova, a Gazprombank board member, played down
"Gazprombank is the least exposed to Ukrainian risk among
major Russian banks. Gazprombank has no subsidiary in Ukraine.
Gazprombank does not lend locally (and) has no retail lending in
Ukraine. All credit exposure is contract-based secured lending,"
Sberbank, Russia's largest bank, declined to detail its
exposure to Ukraine when it announced third-quarter results last
week. VTB declined to comment and VEB was not immediately
available to comment.
EYEING THE EXIT
Foreign banks have $28.2 billion in cross-border claims and
local loans in foreign currency, according to the Bank for
International Settlements, whose figures cover 31 countries
Gianni Franco Papa, head of Italian bank UniCredit's
market-leading central and eastern European business,
said the bank was not being put off by the drama playing out on
Kiev's streets. The country has handled crises in the past.
"Whether they are able to cope this time or not we will know in
a few days."
An executive at Greece's Piraeus Bank, whose
Ukraine unit has 60 branches, said: "There is no panic and no
deposit outflows. Ukrainians are used to political crises. But
what does happen - with us and at other banks, too - is that
there is increased interest to buy foreign currency, mainly U.S.
Some European banks have already pulled out of Ukraine,
since 2008, including Commerzbank, Erste Bank
and Swedbank. Emerging Europe's
second-biggest lender Raiffeisen Bank International
has said it would not rule out an exit from Ukraine as it
sharpens its focus.
Dimitry Sologoub, head of research at Raiffeisen in Kiev,
said the banks had learned lessons from the 2008 crisis, so were
much less exposed to credit risk, liquidity risk and forex risk,
and the central bank was calming matters by providing liquidity
and foreign exchange.
"The question is how long it will go? The reserve cushion of
the national bank is not so big."
In the meantime, Ukraine might secure short-term benefits
from its closer ties with Russia, enough perhaps to stave off
the kind of currency crisis that nearby Belarus suffered in
2011, said Charles Robertson, chief global economist at
Renaissance Capital in London.
"In the long run, it will probably keep Ukraine poor. This
is bad for Ukrainians and bad for Russia," he added.
"Instead of being a strong, successful economy on Russia's
borders, able to buy plenty of Russian exports, Ukraine risks
becoming another Belarus."