Russian attack on Ukraine heightened uncertainty within the global economy. Western nations imposed sanctions on Russia as they condemned Putin’s military operation.
Russia’s military operation in top Ukrainian cities had world economy uncertainty intensifying. Meanwhile, western leaders declared restrictive economic policies to target individuals and financial institutions in Russia.
The sanctions included freezing assets of Russian oligarchs and companies in western nations. Moreover, removing SWIFT services for some banks in Russia. They also inhibit the Russian central bank in using foreign reserves ($630 billion) to escape imposed sanctions.
Responding to such developments, some rating agencies signaled to cut Russia’s credit score to junk status, while some did that. That means the agencies see Russia defaulting its debts. Moreover, the global banks’ group said default is highly likely.
Risk to Banks
Russia’s debt in overseas banks stands at above $100 billion. That raises concerns about risks to foreign banks and a possible default to trigger a 2008-like liquidity crisis, banks panicking about the solvency of other banks and suspending lending.
European banks remain most exposed to new sanctions on Russia, primarily financial institutions in Italy, France, and Austria. Data from BIS (Bank for International Settlements) indicate that Italy and France’s banks have outstanding claims of nearly $25 billion on Russia’s debt, whereas Austrian banks claimed $17.5 billion.
Besides debt exposure, most banks will experience a hit since they provide banking services in Russia or Ukraine. Fitch, a rating agency, shows France banks Credit Agricole and BNB Paribas have local subsidiaries with Ukraine. Meanwhile, European banks UniCredit and Societe Generale lead in Russian operations and are the most vulnerable to Russian debts.
Moreover, the UK, Cyprus, and Switzerland are the destinations for Russia’s oligarchs looking to store their money overseas. Also, Cyprus’ golden passports attract Russian wealth. Financial establishments in these nations will likely lose business due to sanctions. For instance, UK banks NatWest and Lloyds had their share price plummeting by over 10% since the war started.
Beyond banks, the conflict will see many businesses connected to Russia sustaining considerable losses. Any company owed cash by a Russian business will struggle for repays as the ruble plummeted by 30% and money transfer restriction amid new SWIFT rules.
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