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In the wake of Russian invasion of Ukraine, Italian banking group UniCredit has revealed that its capital base may take a hit of up to €7.4bn ($8.1bn) in case it completely write-off its Russian business.
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In the worst-case scenario, the write-off could dent the company’s capital by 200 basis points.
The lender said it is closely monitoring the developments in Russia, where it had €7.8bn in loans to customers through UniCredit Bank Russia at the end of 2021 and its risk-weighted assets (RWA) stood at €9.4bn.
“Net of foreign exchange hedges, our direct exposure to UniCredit Bank Russia is reduced to around €1.9bn,” the lender said.
Currently, Russian client cross border exposure of UniCredit is valued at around €4.5bn, which is net of guarantees of nearly €1bn by non-Russian State Export Agencies, and accounts for around €3bn RWA.
Oil and gas are the main sectors of exposures that make up around 30% of the bank’s portfolio.
Transport, and machinery & metals each make up 20% of the exposure, while exposure to chemicals and financial institutions is around 10% and 8%, respectively.
Despite the substantial Russian exposure, the lender confirmed its proposed 2021 cash dividend of €1.2bn.
“Whilst we do not consider this extreme scenario as our base case, we are taking a prudent and sustainable approach to our distributions,” UniCredit’s statement read.
The lender also said that if its CET1 remains above 13%, it will go ahead with its €2.58bn share buyback plan.
UniCredit’s announcement comes after Italian banking major Intesa Sanpaolo announced that it is conducting a review of its Russian operations.
Last week, France’s Societe Generale warned that the bank’s Russian exposure could cost it around $20bn.
