THEexposure of European banks in Russia amounts to about 100 billion euros and "appears manageable”; therefore, the initial impact of the war between Russia and Ukraine on the financial stability of the euro area is limited”. This was indicated by the head of ECB supervision, Andrea Enria, during ahearing before the European Parliament's Economic and Monetary Affairs Committee.
“European banks have a strong capital and liquidity position”
In general, European banks are “well prepared for the impact of the Russo-Ukrainian war thanks to the strong capital and liquidity position”, Enria added, noting that direct exposures are concentrated in a few banks operating in Russia, Ukraine or Belarus through mostly locally financed subsidiaries. “Even in the extreme scenario, where European banks were to write down cross-border exposures and decide, or be forced, to exit the region, the overall impact on capital would not compromise the maintenance of supervisory requirements”.
Furthermore, the ECB does not see the risk of "a spike in NPL increases" on the horizon, Enria said again.
"Any payments in rubles could generate new NPLs"
But on the controversial hypothesis of payments in rubles by Russian companies or counterparties to European banks on loan installments, "we are entering very delicate ground with respect to what the accounting treatment could be - warned Enria - If the other party pays in rubles while the contract was in dollars we need to evaluate the reclassification of loans and if they don't become non-performing loans. We work hard on our teams to understand what it means in individual banks – he said – in terms of reclassification and provisions ”.
“Difficult to assess the secondary effects of the sanctions”
ECB Banking Supervision is also assessing the possibility of secondary effects of sanctions on banks, which are more difficult to assess. For example, through exposures concentrated on sectors or customers indirectly affected by sanctions, by the volatility of energy and markets or, further explained Enria, by the general deterioration of the economy.
“Banks need to improve cybersecurity”
Supervision “is carefully monitoring the risk profile of European banks and is asking institutions to improve their defenses against cyberattacks and their operational resilience. We are ready - concluded Enria - to implement rapid supervisory actions if the risk framework on individual banks were to deteriorate".
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