OAO Sberbank and VTB Group, Russia’s biggest publicly traded lenders, sank the most in almost five-and-a-half years on concerns tensions in Ukraine could damage their operations in the country and harm their home economy.
Sberbank, the larger of the two banks, fell 15 percent to 77.35 rubles in Moscow, while VTB fell 18 percent to 3.46 kopeks. The drops were the sharpest in both cases since October 2008. The benchmark Micex Index lost 11 percent.
The lenders have investment in Ukraine via local retail units and from Russian and Ukrainian companies that have borrowed funds to acquire local assets. The banks have also been hurt by the ruble, which weakened today to a record low after the central bank unexpectedly raised its key rate 150 basis points. A weaker currency encourages Russians to withdraw and convert ruble deposits, Sberbank’s main source of funding.
“Russian banks appear very vulnerable due to direct exposure to Ukraine and expected destabilization of the funding base related to flight from ruble,” analysts led by Natalia Orlova, chief economist at Alfa Bank, wrote in an e-mailed report today.
President Vladimir Putin ordered the deployment of troops to Crimea over the weekend, raising the specter of a military conflict. European and U.S. leaders have threatened sanctions against Russia, creating risks that economic growth will stall, demand for the country’s assets will dry up and a selloff in the currency will deepen.
Russian banks are seeking to grow in Ukraine after some western European lenders sold units in eastern Europe to comply with capital rules or state-aid conditions. Russia’s development bank Vnesheconombank, state-controlled OAO Gazprombank and VTB are the most “exposed” to Ukraine, according to Fitch Ratings Ltd.
Sberbank, headed by former Economy Minister Herman Gref, said on Feb. 17 he is planning further expansion in Ukraine after more than doubling the number of retail clients to 800,000 in 2013 and opening an additional 50 branches.
VTB, which was organizing a $12 billion loan to Ukraine, said on Feb. 26 it had stopped lending to new clients in the country. On the same day, Alfa Bank, Russia’s largest privately owned lender, said it’s in the “final stage” of acquiring Bank of Cyprus’s Ukraine unit for 224 million euros ($308 million).
Putin put the total exposure of the banks to Ukraine at about $28 billion, according to a Kremlin statement in November. Sberbank’s exposure is about $5 billion, while VTB’s is “slightly larger,” according to an e-mailed report today from an analyst at UralSib Financial Corp.
“A collapse is unlikely, but some unpleasant jolts are expected,” Natalia Berezina, banking analyst at UralSib, wrote.