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Austrian Banks with Significant Exposure in Ukraine

Published: February 27, 2014; 15:24 · (Vindobona)

Ukrainian crisis hits Western Banks in different state compared to 2008/09, according to RBI.

Austrian Banks with Significant Exposure in Ukraine / Picture: © Vindobona.org
  • Market share of foreign-owned non-Russian banks in Ukraine some 50% below 2008 level (40% vs. 17%)
  • Cross-border exposures of Western European banks currently 50% below 2008 levels
  • Western banks with a much more cautious market approach compared to the run-up of the 2008/2009 crisis
  • Highest relative exposures (with NPLs mostly provisioned) in Austrian, Italian and French banking sector

Given the deepening economic and financial market crisis in Ukraine the exposure of foreign banks to the country is once again back in the (market) focus (like back in 2008/2009). However, concerning current exposures of Western European banks to Ukraine RBI wants to highlight several important aspects that are a bit different today compared to the situation back in 2008/2009.

Western European banks have been in strong deleveraging and de-risking mode in Ukraine since several years. Total foreign claims of Western European banks towards Ukraine are on a secular decline since 2008 and are currently some 50% below the levels of December 2007. This is in stark contrast to the overall CEE market approach of (leading) Western European banks in the CEE region (including Russia). For the whole CEE region total exposures of Western European banks are currently more or less at the level of 2008 (which is a fairly good result given overall banking sector deleveraging in Europe). Therefore, the market share of foreign-owned Western European banks in Ukraine is logically also on a secular decline since 2007/2008 (driven by balance sheet deleveraging and outright market exits). Back in 2008 foreign-owned non-Russian banks had a market share of around 40% in Ukraine, while nowadays the market share of non-Russian foreign-owned banks in Ukraine is below 20%.

Hence the current crisis hits foreign-owned Western European banks in Ukraine at a totally different and less problematic stage of market approach. Prior to the last deep crisis Western European banks were chasing market shares in Ukraine (which usually tends to add to credit risk), while Western European bank had been charac- terized by a cautious market approach in recent years. This is, in fact, reflected in high NPL ratios of foreign banks, which has escalated to the present levels exactly due to the eroded ratio’s base (deleveraging in crisis, and unwilling to take the new risk afterwards). Essential is that this high credit risk is already “priced in” the foreign banks results, being provisioned and hence accounted in the prof- its and capital base.

That said it is also obvious that on a relative basis the importance of Ukraine in total CEE exposures of leading Western European banks has decreased substantially over the last years. Back in 2007/2008 Ukraine represented around 3% of total CEE exposures of Western European banks, while this ratio currently is around 1 percentage point lower. With regards to the overall exposure of Western banks to Ukraine there are three countries with significant exposure: Austria, Italy and France. The banking sectors of these three countries together represent something like 70% of total (cross-border) exposures of Western European banks to Ukraine (other banking sectors with non-negligible exposure to Ukraine are Germany and Greece). However, in case of the major exposure countries (Austria, Italy and France) the relative importance of Ukraine in total CEE exposure also decreased over the last few years. For Austrian banks the exposure to Ukraine currently represents around 3% of total CEE exposures, while this ratio had been around 4% back in 2007/2008.