The risk of deposits being taken out of banks because of the pressure from Ukraine has increased significantly

17 march 2017 | Nezavisimaya Gazeta

Experts disagree about the consequences that the sanctions Ukraine imposed on the 5 subsidiaries of Russian banks operating in Ukraine are going to have for Russia, writes the Nezavisimaya Gazeta. The Bank of Russia claims that even the worst-case scenario will not have much effect on the financial stability of the banks in question. Experts say losses may be as high as $5 billion.

Daniil Nametkin
Daniil Nametkin
Department for Expert Analytics

 "The Russian banking sector has been quite successful at tackling the various challenges resulting from the deteriorating macroeconomic situation in Ukraine, even at the height of the Russia-Ukraine crisis. One of the main factors in preserving stability has been effective risk management and timely allocation of reserves," Analytical Center expert Daniil Nametkin told a Nezavisimaya Gazeta correspondent. "Nevertheless, there has now been a significant increase in the risk that both individuals and companies are going to start taking out their deposits as the pressure the Ukrainian government is putting on the Russian banks increases."

For example, in 2014 (the year the conflict in Ukraine started), the Savings Bank of Russia put RUB 290.8 billion aside as reserves, which was significantly higher than the RUB 56.7 billion it had spent on reserves in 2013, Mr. Nametkin noted. In subsequent years, the amount of funds being allocated to reserves was also significantly higher than in the year immediately before the crisis: RUB 475 billion in 2015 and RUB 342 billion in 2016. One of the reasons in this significant increase in loan reserves spending was the need to create reserves for Ukrainian borrowers because of the economic turmoil in Ukraine, the expert believes. "The Ukrainian subsidiary of the Savings Bank of Russia was also boosting its reserves for all kinds of possible losses," the expert explained, "while in 2013 it only spent UAH 411 million on reserves, in 2014 this figure already went up to UAH 2.7 billion and in 2015 it was as high as UAH 8.3 billion; in the first nine months of 2016 the bank's reserve allocations were already UAH 5.5 billion. As a result, by the end of Q3 2016 the ratio between total reserves and issued loans rose to 33.6% versus 24.3% in 2015 and 15.3% in 2014."

Photo: from open sources