Aurelia Butler

It said that most of the 40 billion hryvnias ($1.35 billion) taken out of the bank accounts had been spent by companies to pay salaries and taxes and that the accounts had not been replenished. “At the same time, due to the slowdown in economic activity, the flow of funds to their accounts has slowed down significantly,” it said in a written comment to Reuters.The central bank said it would continue supporting banks with refinancing loans to prevent their insolvency.As of now “banks have a sufficient stock of highly liquid assets to meet their obligations, so the reduction in the funds of legal entities will not lead to a violation of their stability,” the central bank said. The volume of individual deposits in the hryvnia currency had grown by 50 billion hryvnias during the same period as people do not have access to banks in some conflict zones, meaning they cannot take physical money out. ($1 = 29.7000 hryvnias) More

Brussels has told EU countries to use the €200bn of unused loans available under the bloc’s recovery plan before considering more collective borrowing, as capitals seek ways of coping with the shocks reverberating from the Ukraine war. Valdis Dombrovskis, the European Commission’s executive vice-president, told the Financial Times that the “first line” reaction for member states was to tap the unused capacity of the union’s €800bn Recovery and Resilience Plan. This, he said, could be channelled into investments in energy security and “moving away from Russian gas and oil”. The EU was also working on temporary state aid rules to help member states support companies hard-hit by the crisis, as well as additional measures for a “co-ordinated EU response”, he added. His words come as member states, including France, open a discussion over the idea of extra EU borrowing to help fund efforts to boost the union’s energy independence and security requirements ahead of a summit beginning in Versailles on Thursday. EU officials have been examining options for extra fundraising, but Dombrovskis made it clear that the priority is making sure the EU’s existing budgetary facilities are used to the full. The EU’s Covid-19 recovery fund pays out both grants and loans but member states including Spain, Portugal and Cyprus have not yet chosen to draw down the full amount of lending available. They can do so until August 2023. Spain still has the ability to tap at least €70bn of recovery fund cash, Portugal €12bn and Cyprus €1.3bn, according to commission figures. Italy has already demanded the full quantity of grants and loans available, totalling more than €200bn. The recovery fund cash cannot be used to substitute a recurring national budget expenditure but could fund solar panel installations and increase resilience such as cyber defence. One EU diplomat said the idea of boosting the EU’s common borrowing had been “loosely” mentioned in recent conversations among member states but was not currently the union’s focus given the untapped capacity that is already available. A French official said that the summit will see the “first exchanges” on the possibility of a new European resilience and investment plan, with a particular focus on energy and defence. But the official stressed that the debate on the plan was only just beginning. The focus at present is on assessing the economic consequences of the war in Ukraine, before examining the appropriate response. Dombrovskis also expressed caution over ideas from some national capitals that money they borrow to fund green projects or even defence could be exempted from the bloc’s debt reduction rules.Under the stability and growth pact, which has been suspended during the coronavirus pandemic, countries must reduce debt levels towards 60 per cent of gross domestic product and aim to keep budget deficits below 3 per cent of GDP. “Even if we decide to pretend that part of the debt doesn’t exist, it still exists and still needs to be financed, and markets will still want to know how it’s going to be financed,” said Dombrovskis.But he accepted that there could be “more gradual debt reduction pathways” for member states. The pact is currently suspended in the wake of the Covid-19 crisis, and EU officials have signalled that they will consider keeping it on hold next year as well. Dombrovskis, a former prime minister of Latvia who has long warned of the dangers of Russian aggression, said the EU and allies would agree further trade measures against Moscow “in a matter of days”.The EU is waiting for the 27 member states to agree before acting with the US, UK, Japan and other democracies to deprive Russia of “most favoured nation” status at the World Trade Organization, which would increase tariffs. “We are coordinating with other international partners concerning the withdrawal of most favoured nation status from Russia and Belarus, which would allow us to impose additional tariffs on Russia and Russian imports,” Dombrovskis said. Canada has already made such a move.“Both options are possible, imposing tariffs or also proceeding with further import bans or export controls,” Dombrovskis said. Additional reporting by Victor Mallet in Paris More

WASHINGTON (Reuters) – Russia and Belarus are edging close to default given the massive sanctions imposed against their economies by the United States and its allies over the war in Ukraine, the World Bank’s chief economist, Carmen Reinhart, told Reuters.The specter of Russia defaulting on $40 billion of external bonds – its first major such default since the years following the 1917 Bolshevik revolution – has loomed large over markets since a raft of sanctions and countermeasures by Moscow have largely cut the country out of global financial markets. “Both Russia and Belarus are in square default territory,” Reinhart said in an interview. “They’re not rated by the agencies as a selective default yet, but mighty close.”Fitch on Tuesday downgraded Russia’s sovereign rating by six notches further into junk territory to “C” from “B,” saying a default is imminent as sanctions and trade restrictions have undermined its willingness to service debt. Reinhart said financial sector repercussions had been limited thus far, but risks could emerge if European financial institutions were more exposed to Russian debt than assumed.Around half of Russia’s sovereign hard-currency bonds are held by foreign investors and Moscow must make $107 million in coupon payments on two bonds on March 16. Russian corporates have just under $100 billion in international bonds outstanding. Foreign banks have exposure of just over $121 billion to Russia with much of that concentrated in European lenders, according to data from the Bank of International Settlements. “I worry about what I do not see,” Reinhart said. “Financial institutions are well-capitalized, but balance sheets are often opaque … There is the issue of Russian private sector defaults. One cannot be complacent.”China also rapidly expanded its lending to Russia after its 2014 annexation of Crimea, she said.UKRAINE’S DIFFICULT SITUATIONAnalysts say Ukraine will also need debt relief this year given its massive war-related outlays and a heavy debt burden of $94.7 billion at the end of 2021, although the country has vowed to service its debt on time and in full.Reinhart said it was reasonable to expect Ukraine to seek cash-flow relief, and expressed confidence that creditors would be receptive given the current situation. Ukraine could also miss an upcoming coupon payment, at least during the grace period, without its credit rating suffering, she said.”Ukraine has and will have open doors given its very difficult financial situation,” she said. “You’re not declared in default as long as you’re still within the grace period.”Ukraine’s sovereign debt includes $1.6 billion owed to Paris Club creditors, and $4.9 billion to non-Paris Club creditors, most of which is held by China, according to debt experts. More

MILAN (Reuters) – European bank stocks have lost a fifth of their value over the past month amid the Ukraine crisis. Western sanctions against Russia following its invasion of Ukraine have upended the financial sector, but the main hit to banks are the threats to the global economic outlook and the prospect of higher interest rates.Investors worry banks will again need to hike loan loss provisions, which had been declining after the pandemic-driven spike in 2020. The crisis is also reducing the chances of higher interest rates, which would have boosted income from lending.Some banks, however, are also directly exposed.Italian and French banks have the largest Russianexposure, representing just over $25 billion each at the end ofSeptember, followed by Austrian banks with $17.5 billion, Bank of International Settlements https://stats.bis.org/statx/srs/table/b4?c=RU&f=pdf data shows.U.S. bank exposure totals $14.7 billion, BIS data shows.Following are some banks with significant Russianexposure.EUROPEAN BANKSUNICREDITItaly’s second-biggest bank said a full write-off of its Russian business, including cross-border and derivatives exposure, would cost around 7.4 billion euros ($8.1 billion), pushing its core capital ratio to around 13% from 15.03%.UniCredit said it would still pay cash dividends for 2021 in the worst-case scenario where it zeroed its exposure, while plans for a 2.6 billion euro share buyback are contingent on its core capital ratio remaining above 13%.UniCredit said its Russian client cross-border exposure stood at 4.5 billion euros, net of guarantees of around 1 billion euros.It has also a direct exposure of 1.9 billion euros (net of currency hedges) to UniCredit Bank Russia, its local arm and Russia’s 14th largest lender.UniCredit could also potentially suffer an up to 1 billion euro loss on derivatives if the rouble’s value fell to zero. RAIFFEISEN BANK INTERNATIONAL (RBI) RBI has operated in Russia since the collapse of the SovietUnion and its business there contributed almost a third of its net profit of 1.5 billion euros last year.RBI’s Russian business holds 2.4 billion euros in capital, or 18% of consolidated equity. Russia’s 10th-largest bank by assets, it employs around 8,700 staff.RBI’s said its overall Russian exposure totalled 22.85 billion euros file:///C:/Users/u8018106/OneDrive%20-%20Thomson%20Reuters%20Incorporated/Desktop/2022-02-02%20Presentation%20RBI.pdf at the end of last year, more than half relating to the corporate private sector.The overall figure comprises 11.6 billion euros in customerloans (or 11.5% of group), more than 80% in roubles.Cross-border exposure to Russia is only 1.6 billion euroswith no parent funding from Vienna. RBI also holds 2.2billion euros in loans to Ukrainian customers.SOCIETE GENERALESociete Generale (OTC:SCGLY), which controls Rosbank, had 18.6 billion euros https://www.societegenerale.com/sites/default/files/documents/2022-02/Q4-21-Financial-Results-Presentation.pdf of overall exposure to Russia at the end of last year – or 1.7% of the group total.More than 80%, or 15.4 billion euros, is held locally by Rosbank while cross-border exposure amounts to 3.2 billion euros, including 600 million euros in off-balance sheet items.The French bank, which started doing business in Russia in 1872, left in 1917 and returned in 1973, said its Russian activities in 2021 represented 2.7% of group net income.Last week it said it could withstand an extreme scenario where its Russian business is confiscated, which would shave only half a percentage point off its core capital.Of SocGen’s Russian exposure, 41% is to retail and 31% to corporates. Exposure to Russian sovereign entities stands at 3.7 billion euros.CREDIT AGRICOLEThe French bank said its overall exposure to Russia, including both onshore and offshore items, was 6.7 billion euros, or 0.6% of its total commercial lending portfolio as of Dec. 31.That comprises 2.9 billion euros of offshore exposure to 15 large Russian corporates, notably producers and exporters of commodities.Credit Agricole (OTC:CRARY) operates in Ukraine and Russia through two fully-owned subsidiaries. Crédit Agricole Ukraine holds 226 million euros in equity. That of Russian arm CACIB AO, a subsidiary of Crédit Agricole CIB, stands at 150 million euros.Credit Agricole said it was monitoring closely its exposures to Russia, but there would be no impact on its 2021 dividends.BNP PARIBASThe French bank unveiled on Wednesday a total exposure of around 3 billion euros ($3.3 billion) to Russia and Ukraine, sticking to its previously announced 2025 financial targets. INTESA SANPAOLOItaly’s biggest bank has financed major investment projectsin Russia, such as the Blue Stream gas pipeline. It handles more than half of all commercial transactions between Italy and Russia. Intesa’s loan exposure to Russia was 5.57 billion euros atend-2021, or 1.1% of the total. Its subsidiaries in Russia and Ukraine have assets, respectively, of 1 billion and 300 million euros, which together represent just 0.1% of the group total.Intesa has said it was conducting a strategic review of its Russian presence.ING The Dutch bank has around 4.5 billion euros in outstandingloans with Russian clients and around 600 million euros withclients in Ukraine, out of a total loan book worth more than 600billion euros.UBSThe Swiss bank said on Monday its direct country risk exposure to Russia accounted for $634 million of its total emerging market exposure of $20.9 billion at end-2021.U.S. BANKSCITIGROUPCiti said last week its total exposure to Russia amounted to nearly $10 billion and it was working to bring it down.That comprises third-party exposures worth $8.2 billion, of which $1.0 billion in cash at the Bank of Russia and other financial institutions and $1.8 billion of reverse repos.Citi also has $1.6 billion of exposures to additional Russian counterparties outside of its Russian subsidiary that are not included in that $8.2 billion.By comparison, Goldman Sachs (NYSE:GS) reported last month $293 million in net exposure to Russia, as well as a total of $414 million of market exposure as of December 2021.($1 = 0.9016 euros) More

The tactical reasoning behind the US ban on Russian oil and gas imports, and a UK plan to phase out Russian oil imports by the end of the year is clear: to deprive Moscow of the foreign currency necessary to fight its war in Ukraine and close one of the few remaining gaps in the economic blockade that has been imposed on Russia. On their own, the moves are unlikely to be effective. The two countries account for only a small portion of Russia’s oil exports. The commodity is fungible and traded on global markets. Any broader embargo also needs to be part of a well-thought-out strategy. Oil and gas revenues are vital to Moscow, making up 36 per cent of the country’s budget in 2021, although that partly reflected already-surging prices. The importance of these funds has only increased: last week, after sanctions were imposed on the central bank’s foreign exchange reserves, Russia changed its rules to allow oil and gas revenues to be used more freely to fund day-to-day expenditure. The US imports very little oil from Russia, however; much more goes to the EU and China. With even higher global prices for the black fuel — partly thanks to the anticipation that Russian supply will, one way or another, be affected by the war — the country will still earn a substantial amount from exporting to other trade partners.Nevertheless the impact of the US ban should not be dismissed. While it may mostly have a symbolic effect, it can raise pressure on other countries or oil companies to follow suit and cease trading with the country. Shell, the Anglo-Dutch oil major, was forced to end its operations in Russia following a public outcry over its purchase of a deeply discounted shipment. Lower or uncertain demand from refineries may lead to cuts in Russian production. Even before the US and UK announcements, so-called self-sanctioning and consumer pressure had opened up a discount between Urals crude, the main Russian benchmark, and Brent, the international standard, but this is not yet enough to fully offset the effect of higher global prices. As an alternative to a ban, imposing a special import tariff on Russian oil could widen this discount.Either way, restricting oil supply from the world’s second-biggest producer will hurt the west as well as Moscow. Higher oil prices will drive up already high levels of inflation and stretch consumer budgets even further. That may test solidarity with Ukraine and voters’ willingness to stick with the policy as the war continues. The US push to find extra supplies — potentially leading to partial detentes with Venezuela and Iran — may provide some relief, especially if other Opec producers can be persuaded to increase deliveries.Russia is likely to retaliate. Alexander Novak, a deputy prime minister, warned earlier this week that Moscow could cut natural gas supplies to Europe via the Nord Stream 1 pipeline in response to western sanctions. Making good on that threat, however, would ultimately be self-defeating, further reducing Russia’s foreign exchange earnings. Gas relies much more than oil on pipeline infrastructure to deliver it. Apart from Europe, the only main purchaser of Russian gas is China, and there is limited short-term scope to increase supplies.Public anger over the scenes of destruction in Ukraine and the harrowing stories from refugees made an escalation of sanctions inevitable. Just as inevitable is that swingeing measures such as an oil embargo will hit both sides. Western leaders need to start preparing their voters for the impact that will have on energy prices. More

The announced agreement comes as current funding for U.S. agencies is set to expire on Friday. House Appropriations Committee Chair Rosa DeLauro, in a separate statement, said the plan includes $730 billion in non-defense funding and $782 billion in defense funding.”This bipartisan agreement will help us address many of the major challenges we face at home and abroad: from COVID-19, to the vicious and immoral attack on Ukraine, to the need to lower costs for hardworking American families,” U.S. House Speaker Nancy Pelosi and U.S. Senate Majority Leader Chuck Schumer said in a statement. The omnibus spending plan will boost funding for domestic priorities, including money for infrastructure passed under an earlier bipartisan measure to revamp U.S. roads, bridges and broadband, they said. It also includes new protections to protect U.S. infrastructure from cyberattacks “by Russia and other bad actors.” The measure will also reauthorize the Violence Against Women Act, Pelosi and Schumer said. More