Russia Tensions Prompt Austrian Bank to Stash Fallout Funds

(Bloomberg) -- Austria's Raiffeisen Bank International AG became the first large European lender to say that it's setting aside money to deal with the potential fallout from tensions related to Russia and the military escalation near Ukraine.

The bank said it made provisions of 25 million euros ($28.2 million) for geopolitical risk in Ukraine and 21 million euros for sanctions in Russia. Overall loan charges rose 11% to 150 million euros in the fourth quarter from a year earlier.

Tensions have soared as Russia masses more than 100,000 troops on Ukraine's border, though officials in Moscow have repeatedly said they have no intention of invading the country. Western nations have warned of punishing economic sanctions in the event of war, raising the prospect of severe disruptions for financial institutions.

“Our banks in Russia and Ukraine are in good shape,” Chief Executive Officer Johann Strobl said in a statement. “Business is running normally despite the geopolitical tensions. Nevertheless, we are monitoring developments very closely.”

The Austrian lender said it also increased currency hedging in the second half of last year to limit consequences for its key capital ratio and is assessing the likelihood of sanctions on individual customers. The units in Russia and Ukraine don't receive funding from the parent company in Vienna, according to Raiffeisen.

Read this for more on banks' exposure to Russia

The lender has 22.9 billion euros of exposure to Russia, about 9% of which could face sanctions. That breaks down as 4% for the Russian sovereign, 3% for potential sanctions targets and 2% for Russian banks, the lender said.

Russian customers account for 11.5% of Raiffeisen's total loans while Ukraine makes up 2.2%, company filings show.

While several international banks have dialed back their operations in Russia in recent years, Societe Generale SA, UniCredit SpA and RBI are still among the largest European banks in the country, according to data from the European Banking Authority.

UniCredit said last week it is ready to manage the impact any of potential measures against Russia, as it has done in the past, and doesn't see major hit coming. The Italian lender is “constantly evaluating and reviewing mitigating actions trying to anticipate what the sanctions could be,” CEO Andrea Orcel said.