Mar 29, 2022 (Nikkei) - Japan's top banks face the prospect of having to set aside billions of dollars in loss provisions for their exposure to Russia as the declining ruble and the financial turmoil there raise default risks.
Russia accounts for less than 1% of outstanding credit at each of the three banking groups, as they have steered clear of new lending there since the 2014 invasion of Crimea. But together they still had more than $8 billion in exposure to the country before the invasion of Ukraine.
While much of this is in the form of loans to businesses that still have comfortable cash positions, the business climate has turned dire due to Russia's cratering credit rating and the loss of confidence in the ruble under the sweeping sanctions imposed on Moscow.
"We're at a very tricky point in terms of how to gauge the credit risks of companies that are spotless in our internal credit ratings," a megabank chief said.
MUFG Bank reported 270 billion yen in exposure ($2.2 billion at current rates) at the end of January, Sumitomo Mitsui Banking Corp. had $3.1 billion at that time, and Mizuho Bank had $2.9 billion at the end of 2021.
The biggest impact on profits is likely to come from country risk, rather than specific corporate borrowers.
Russia's limited access to foreign currency could force banks to book a particular type of country-specific loan loss reserve required for markets with high financial or economic risks. The specific amount is based on factors including ratings agencies' assessments of the country's sovereign debt. Japanese banks previously set aside such reserves in response to instability in Myanmar and Iran. ...continue reading
