ECB warns European lenders on Russia sanctions risk

The European Central Bank has warned lenders with significant Russian exposure to ready themselves for the imposition of international sanctions against Moscow if it invades Ukraine.

The warning from the ECB, which supervises 115 of the biggest eurozone banks, comes as the US has warned that Russia would face “massive consequences” if sent troops into Ukraine.

Sanctions would raise significant risks for the international banks with large Russian exposure, including Citi of the US, France’s Société Générale, Austria’s Raiffeisen and Italy’s UniCredit.

ECB officials have asked for details of how the banks would handle different scenarios, such as a move to block Russian banks from accessing the Swift international payments system, according to several people briefed on the talks.

The requests underline how the ECB wants to ensure that European banks can comply with any sanctions regime and are able to quickly cut out clients that they are banned from dealing with.

The central bank has explored the risks of various scenarios and has pressed the banks to share details of their own assessments and contingency plans, according to people briefed on the discussions.

It has also requested information on Russian and Ukrainian exposures from Deutsche Bank and ING, the biggest lenders in Germany and the Netherlands, respectively. Citi, Deutsche Bank, SocGen, Raiffeisen and ING declined to comment, as did the ECB. UniCredit could not be reached for comment.

International banks, including their Russian subsidiaries, have about $121bn in assets owed to them by Russian-based entities and there is $128bn in loan and deposit funding from Russian entities to foreign banks, according to the Bank for International Settlements.

SocGen has the biggest financial exposure to Russia of any European bank, with €2.6bn, according to research from JPMorgan. Austria’s Raiffeisen has €1.9bn of exposure, while UniCredit has €1.4bn.

Andrea Orcel, chief executive of UniCredit, was one of the top executives from large Italian companies that joined a video meeting with Russian president Vladimir Putin on Wednesday to discuss economic ties.

A senior executive at one of the banks said the main risk from sanctions was for its Russian investment banking operations, which deal with large multinational companies and oligarchs, rather than to its commercial banking unit, which mostly deals with midsized companies.

The executive said the biggest “systemic risk” would be if Russia was cut off from the Swift payments network, which could “have an impact on the whole banking system in Russia”. However, the executive said the Russian central bank planned to activate a domestic interbank payment system to replace Swift, if needed.

An additional risk for the European banks is that conflict in Ukraine could hit the value of the rouble, reducing the value of equity held in their Russian subsidiaries.

Another European bank executive said there was a concern about the risk of going to jail in Russia if Moscow retaliated against banks that tried to implement international sanctions. “We need to be able to implement sanctions very fast . . . sometimes it takes time, you may have relationships to wind down,” the executive said.

Michael Lyons, partner at law firm Clifford Chance, said sanctions could affect a broad group of banks operating in Russia. “Customers of retail banks are not just regular individuals, but also corporates, and private [business] entities. Some may have sizeable private wealth management divisions.”