The effects of the Russian – Ukraine conflict are yet to be felt to their greatest extent by banks in the European Union (EU) and the US, but the full will likely be felt soon according to international consulting firm Profit Insight.
The firm, which specialises in earnings optimisation for the financial services industry, notes that many of the banks in the Ukraine are branch operations of EU-based financial institutions (FIs), and virtually all of the banks in both Russia and the Ukraine are suffering from cash shortages as a result of a general lack of business confidence, companies reining in borrowing requirements and a massive devaluation in both currencies over the last six to nine months.
Recently announced financial defensive measures, such as hugely increased security deposits and a new homegrown domestic processing platform put in place by Russian president Vladimir Putin regarding credit cards, have now been delayed, but they also have great disruptive potential for much of the global banking community.
George White, Profit Insight’s president for Europe, Middle East, Africa and Russia (EMEAR), sees the growing crisis in Russia and the Ukraine as a major potential trouble spot for FIs in his area of responsibility, as well as for US FIs as tit-for-tat embargoes and sanctions start to bite.
“Many of the banks in Russia and in the Ukraine are European, and as they run low on cash due to a combination of currency devaluation, economic sanctions and waning consumer confidence, they must tap reserves held within the EU,” said White. “Losses on loans and other lines of business have been significant in the Ukraine, particularly in Crimea because of the conflict, further complicating things for banks.”
White adds that the all-important credit card business, which essentially connects every country in the world as a vehicle for trade, is a major source of income for the global banking community. “The US government froze all Visa and MasterCard transactions for 48 hours early in the conflict, and that caused a huge ripple effect throughout the region,” he said.
“It spurred Putin to order the creation of Russia’s own card payment scheme that would bypass the Visa/MasterCard systems and insulate Russia from such freezes in the future. While it remains to be seen whether it will be successful, it nevertheless will have extensive impact on Visa and MasterCard, and by extension, their member banks.
“There have also been indications that Russia may embargo various US trade goods and services, with an accompanying impact on financial services like trade lines, inventory financing and other revenue channels.”
“We’re discovering that there are going to be significant effects to card services, decreased lending in many regions and an expected increase in bad debts as banks try to survive the crisis,” warns White. “We are recommending that FIs prepare now to maximise revenue sources and efficiencies within their organisations that can help shore up anticipated losses due to the instability.”
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