By Cristina Roca
Eurozone banks will be able to meet their capital requirements even if they have to write off their exposure to Russia entirely, European Central Bank Supervisory Board Chairman Andrea Enria said on Wednesday.
Exposure to Russia is limited for most currency area lenders and concentrated in a few banks, Enria said in a letter to members of the European Parliament.
For the nine most exposed banks, a complete cancellation of their cross-border exposures to their Russian counterparts and the loss of equity held in Russian subsidiaries would result in a drop of 0.7 to 0.95 percentage point in their Common ratio Equity Tier 1- – a measure of banks’ capital strength – he said.
No individual bank would take a hit of more than 2 percentage points, he said.
“Given the current strong capital and liquidity situation, all affected banks would retain sufficient headroom against minimum and reserve requirements,” Mr Enria said.
However, Mr Enria warned that the ECB is closely monitoring the potential effects of war beyond these direct exposures, he said, noting the high volatility in the markets.
Due to Russia’s importance as an exporter of energy and commodities, the commodity derivatives market could be one of the areas affected, although no sign of significant risk has been seen. reported so far, he said. The lending exposure of some eurozone banks to the commodities sector is also worth watching closely, he said.
“More generally, sanctions against Russia and associated retaliatory measures are causing slower economic growth which banks may need to factor into their capital planning,” he said.
Write to Cristina Roca at email@example.com