Moody’s analysts have reported that banks in the Baltics and the Commonwealth of Independent States are the most exposed to the effects of Russia’s invasion of Ukraine and have limited reserves to absorb the impact if it is prolonged.
The conflict causes a shock to commodity prices and supply that will lead to higher interest rates and slower growth.
Analysts say this will ultimately increase risks for banks and other parts of the financial sector.
Olivier Panis, Senior Vice President at Moody’s, commented: “According to Moody’s Reference Scenario, GDP growth for the G-20 economies will be 3.6% in 2022, down from our forecast of 4, 3% in February.
“Growth will fall further to 3% in 2023. Growth could be even lower in a downside scenario assuming a sudden stop in oil and gas exports to Europe from Russia, a shortage of liquidity and an economic recession widespread.”
The financial sector faces heightened risks through four main channels: a shock to commodity prices, driven by soaring oil prices; business disruption, primarily caused by prolonged supply chain shutdowns; tight liquidity and market volatility; and security and operational risks.
Panis added: “Banks in the Baltics and the Commonwealth of Independent States are the most exposed to the contagion effects of 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 most at risk in Moody’s downside scenarios.”