MOSCOW (Reuters) - Bankers scrambled to assess possible damage to corporate deals and tried to calm customers on Monday after Russia’s military intervention in Ukraine unnerved financial markets and hit bank shares in Russia and across Europe.
Both local and foreign banks are likely to be affected if Ukraine’s currency the hryvnia continues to fall, loans are not repaid or the country defaults on its sovereign debt even though Ukraine’s central bank has imposed limits on the amount depositors can withdraw and is ready to provide liquidity.
“Every banker in Ukraine is trying to calm their clients and to feel safe, that’s their job,” Mykola Chumak, chief executive of Kiev-based private banking advisory firm IDNT, said.
“All the clients have got questions about currency rates and portfolios and they all want to look into the eyes of their banker and ask the questions directly.”
Russian’s Sberbank (SBER.MM), which had temporarily suspended lending in Ukraine, said it would start lending again when the financial situation there improved.
The bank said it had a strong level of liquidity in Ukraine with 1.7 billion hryvnia available and an unused line of support from its main bank of $750 million.
“Banks tend to reflect investor sentiment to Russia more than any other stock so they are being used as a proxy,” Chris Weafer, partner at advisory Macro Advisory, said of the falls in VTB and Sberbank’s shares.
Weafer said concern over the rouble weakness was due to the risk it could encourage people to take money out of local currency and shrink banks’ deposit bases. A weaker rouble also leads to an erosion of consumer confidence which can lead to higher defaults among businesses, Weafer said.
Ukraine’s hryvnia has fallen to a record low while the rouble has dropped 2 percent, although cushioned by central bank intervention.
“The (Russian banks) cannot pull out (of Ukraine),” Alexander Danilov, analyst at Fitch, said. “The only thing which they can do - which they’ve already done - is stop issuing new loans there,” he said. “And now they can only sit and wait and try and recover what they have and hope the situation gets back to normal.”
The crisis could have an impact for investment banks too as they might have to consider pulling upcoming stock market listings due to market turbulence. German retailer Metro’s MEOG.DE plan to list a stake in its Russian wholesale business is under threat, sources said.
Bankers are also trying to assess the impact of the crisis on billions of dollars of Russian loans in the pipeline and whether there will be contagion in the wider syndicated loan market.
For Ukraine’s banks, the main risks are a sovereign default or a prolonged slide in the hryvnia. That could hit their capital levels, Elena Redko, analyst at Moody’s told Reuters.
A big part of the banks’ foreign exchange loans are to firms with no with export revenues or foreign currency revenues, making them susceptible to a fall in the hryvnia.
“So far, the National Bank of Ukraine has acted proactively to monitor the banking system liquidity,” Redko said.
The central bank has already acted to stem potential foreign currency withdrawals.
Local bank Privatbank and the Ukrainian arm of Italy’s biggest bank by assets, UniCredit (CRDI.MI), also have limits on withdrawals.
The largest banks with Ukrainian government debt exposure are state banks Savings Bank of Ukraine, Ukreximbank and Ukrgazbank plus privately held Delta, according to Moody‘s.
Savings Bank of Ukraine said its press service was not accepting calls and did not respond to email. Ukreximbank, Ukrgazbank and Delta Bank did not have working press office numbers and did not respond to requests for comment.
Ukraine’s new central bank head Stepan Kubiv said last week that the bank was ready to provide liquidity, including cash to banks, according to a statement on the bank’s website. “We are in control of the situation in the banking sector,” Kubiv said.
Russian banks, with an estimated $28 billion of assets in Ukraine spread between Sberbank, VTB, Gazprombank GZPRI.RTS and Vnesheconombank (VEB), have a lot at stake.
Sberbank and VTB have pledged long-term commitment although they are halting lending. VTB has said it has exposure to Ukraine of 20 billion roubles ($560 million), largely through private companies, and that its business there amounts to about 2-3 percent of total operations. VTB’s CEO Andrei Kostin said on Wednesday the bank aimed to stay in Ukraine for the long term. On Monday it said it had no further comment on Ukraine.
Sberbank’s CEO German Gref said two weeks ago that the bank had no intention of leaving the market. Sberbank had exposure of 130 billion roubles ($4 billion) to Ukraine - or less than 1 percent of its balance sheet.
State development bank VEB said in December its loan exposure in Ukraine was nearly $4 billion, mostly through unit Prominvestbank. It said last week it had no plans to exit and declined further comment on Monday.
Ekaterina Trofimova, a Gazprombank board member, said on Monday the bank was taking all necessary steps in Ukraine to minimize its risks.
Other foreign banks in Ukraine have to decide whether to cut losses and go or stay put to grab market share.
Raiffeisen Bank International (RBIV.VI) said on Monday it has frozen the sale of its Ukrainian arm due to the uncertain situation in the country.
Additional reporting by Ian Bateson and Oksana Kobzeva in Moscow, Steve Slater and Sandrine Bradley in London, Paola Arosio in Milan, Mike Shields in Vienna, Matthias Inverardi in Duesseldorf and Arno Schuetze in Frankfurt. Writing by Megan Davies. Editing by Jane Merriman