Analysts at Moody’s have reported that banks in the Baltics and in the Commonwealth of Independent States are most exposed to the effects from Russia’s invasion of Ukraine and have limited buffers to absorb the impact if it is prolonged.
The conflict is causing a commodity price and supply shock that will lead to higher interest rates and slower growth.
Analysts believe that this will ultimately increase risks for banks and other parts of the finance sector.
Olivier Panis, Senior Vice President at Moody’s commented: “Under Moody’s baseline scenario, GDP growth for the G-20 economies will be 3.6% in 2022, down from our 4.3% forecast in February.
“Growth will further fall to 3% in 2023. Growth could be even lower under a downside scenario assuming a sharp halt in oil and gas exports to Europe from Russia, a liquidity squeeze and widespread economic recession.”
The finance sector faces increased risks via four main channels: a commodity price shock, led by surging oil prices; business disruption, mainly caused by prolonged supply chain hold-ups; liquidity tightening and market volatility; and security and operational risks.
Panis added: “Banks in the Baltics and in the Commonwealth of Independent States are most exposed to spillover effects from the military conflict and have limited buffers to absorb the impact if it is prolonged.
“European, African and Turkish banks, aircraft lessors, non-life insurers, US non-bank residential mortgage lenders and business development companies are at highest risk under Moody’s downside scenarios.”