By Hans Bentzien
FRANKFURT (Dow Jones) — Eurozone banks have been little affected by the Russian invasion of Ukraine, according to ECB Banking Supervisor Andrea Enria. Enria said at a Morgan Stanley conference that the direct impact is manageable and the indirect impact is difficult to assess so far. According to Enria, the banks’ distribution plans look reasonable against this background, so the ECB does not want to make a recommendation like that at the beginning of the Corona crisis.
“Direct exposures appear to be limited. Institutions have also reduced their exposures, they have liquidated positions and we do not see any major operational problems from sanctions,” said the European Central Bank’s (ECB) chief banking supervisor. According to a graphic he showed, the big banks in Russia had a loan portfolio of 102.8 billion euros before the start of the Ukraine war, while the smaller institutions came up with around 5 billion euros.
Even extreme migration scenarios with a view to Russian subsidiaries seemed manageable in view of the currently solid capital positions of the parent companies. “Also because the Russian subsidiaries are financed in local currency, there is no major intra-group exposure,” said Enria.
The big banks’ positions in interest rate derivatives were around €46.5 billion, according to Enria, and in currency derivatives it was €21.5 billion. The big banks held Russian securities for EUR 5.7 billion and Ukrainian securities for EUR 0.8 billion.
The indirect effects of the war on banks are much more difficult to quantify, Enria says. So far, according to his statement, there is “no fault” here either. According to him, however, the ECB is monitoring exposures to counterparties that could be indirectly affected by sanctions or by the insolvency of a Russian counterparty. The links between banks and non-banks would also be checked. “But even if you look at the indirect exposure through regulated non-banks like mutual funds or pension funds, that’s pretty muted,” said the ECB’s banking supervisor. The same applies to unregulated non-banks.
Against this background and because of the “robust” growth outlook, at least in the base scenario, according to Enria, the bank supervisors see no reason to restrict distributions by banks, based on their recommendation at the beginning of the Corona crisis. “If we look at the announced average payout ratios based on 2021 earnings, they appear to be roughly in a reasonable range,” Enria said. However, Enria made it clear that if the situation were similar to 2020, the ECB would do the same again. “I don’t plan to take this instrument off the table,” he said.
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(END) Dow Jones Newswires
March 15, 2022 10:33 ET (14:33 GMT)