RBS Trims Lending Ties With Russia Amid Tighter Sanctions

Royal Bank of Scotland Group Plc, Britain’s largest state-owned lender, said it’s cutting lending to Russian companies, following European banks including Societe Generale SA and Natixis SA in complying with the latest round of sanctions over Ukraine.

Exposure to Russian companies is 2.1 billion pounds ($3.5 billion) as “limits have been cut and credit restrictions introduced,” RBS said today. Societe Generale’s Deputy Chief Executive Officer Severin Cabannes said the bank will refrain from doing new business with Russian clients, while Natixis CEO Laurent Mignon is putting some activities on hold.

The European Union followed the U.S. in putting more pressure on Russia’s financial system in an effort to force President Vladimir Putin to end support for separatists in eastern Ukraine. The bloc said yesterday it will prohibit Russian state-owned lenders including OAO Sberbank and VTB Group from selling shares or bonds in the EU.

Societe Generale’s capital and funding exposure to its Russian subsidiary represents about 5 billion euros ($6.7 billion), according to Cabannes. The business accounts for about 3 percent of the bank’s balance sheet, he said.

‘Fully Hedged’

“The impact on our business will be only on the new operations, which will be stopped,” Cabannes told Caroline Connan on Bloomberg Television. “All our flows can be filtered throughout an operational scheme, which is in place in all banks. The impact in 2014 won’t be very significant.”

RBS said its net balance-sheet exposure to Russia decreased by 100 million pounds to 1.8 billion pounds, including 900 million pounds of corporate lending and 600 million pounds of loans to banks. Almost half of its lending to banks was “fully hedged,” according to the statement.

In Ukraine, “ratings were reviewed, limits adjusted and additional credit restrictions placed on new business,” the Edinburgh-based lender said.

Western countries hardened their stance against Russia after a Malaysia Air jetliner crashed in a rebel-held area of eastern Ukraine last month, killing all 298 people aboard. U.S. intelligence and military officials say it was the apparent target of a Russia-supplied missile. Putin blamed Ukraine for starting an offensive and causing the crash.

ECB Funding

Russian companies have relied on funding from Europe and the U.S. and will need to find a replacement to support growth, said Vladimir Osakovskiy an economist at Bank of America Corp.

The subsidiaries of OAO Sberbank and VTB Group targeted by sanctions have access to European Central Bank funding as long as they don’t channel it back home. The units maintain access if they need it, an EU official said today.

Mignon said in an interview with Bloomberg Television’s Mark Barton today while sanctions will reduce “business we do with our Russian customers,” the country only accounts for a “very small part” of the French investment bank’s business.

“We’re not very active, we don’t have a sustainable bank there, we have a small representation in Russia,” he said. “We have nevertheless some very long-standing clients in the energy and commodity business, so for the time being we’ve put that activity on hold. We’re looking carefully at the situation.”

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