Heavy Russian borrowing from the West could mean huge losses for banks, according to
CNNMoney. Western lenders, especially European banks, could sustain large losses if the Russian economy stumbles due to sanctions.
That might happen, at least to some degree. Some analysts warn the Russian economy, already slowing, could grind to a halt. The Institute for International Finance estimates that lower foreign investment and lending will slash 1 percent from Russian economic growth, even without tough sanctions.
European loans to Russia stood at $184 billion, or 0.4 percent of total banking industry assets, CNNMoney reports, citing Bank of International Settlements data. U.S. lending amounted to $37 billion, or about 0.25 percent of total assets. French banks have lent $51 billion; Italian banks, $29 billion; and German banks, $24 billion.
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Yet Italy is the most at risk, with lending to Russia reaching almost 1 percent of its banking assets, CNNMoney notes.
Russians, including oligarchs, banks and corporations, had borrowed $732 billion as of the end of last year, an increase of about $200 billion during the last two years, according to the country's central bank.
U.S. and European countries have already listed 28 Russian officials who will be subjected to travel bans and asset freezes. European Union leaders are considering tougher sanctions over Russia's annexation of Crimea. But observers question just how tough sanctions will be, considering the strong economic ties between Russia and Europe.
Sanctions might also hurt London banks, according to
The Wall Street Journal. The impact from "the informal sanction of the marketplace on Russian assets is going to be painful and far-reaching," Bernard Sucher, a U.S. banker working in Moscow, tells the Journal, pointing to greater due diligence and compliance requirements.
Russian businesses in London raised almost $400 billion from 2004 to 2013 in bonds and loans and about $47 billion last year alone, The Journal reports. Banks charged fees that added up to about $1.2 billion a year on average.
Banks also benefit from Russian companies listing stocks and global depositary receipts on the London Stock Exchange and from commissions from trading Russian shares.
Plus, private Russian companies and state companies being privatized have a huge pipeline of initial public offerings being prepared for the London stock market.
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