Europe | How is the banking sector facing up to the war in Ukraine?

Summary

Despite limited exposures, we are likely to see impairments in banks' loan portfolios, an increase in the operational risk resulting from sanctions and a fall in profitability of the most-exposed banks which, in some cases, could erode part of their capital.

Key points

• Key points:
• The banking industry's direct exposure to the conflict is limited, as it has been reduced considerably since 2014. According to the Bank for International Settlements, as of September 2021, it stood at USD 121 billion.
• Of this, European banks’ exposure amounted to USD 91,000 — some 0.2% of their assets and 4% of their capital — a perfectly manageable amount, even if they were to end up with heavy losses.
• However, it is concentrated in three banking systems — Austria, Italy and France —, which also have three banks with Russian subsidiaries, which are that country's 10th, 11th and 12th biggest.
• The banking industry is also indirectly exposed to both customers and client assets under management with exposure to Russia, to those countries bordering the conflict, to other financial intermediaries, and to the general macroeconomic slowdown in Europe.

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