Banks hit by Russian woe

German lenders prepare to increase provisions to cover $30bn exposure after seeing their share prices drop

EUROPEAN BANKS are preparing to make further hefty provisions to cover their exposure to emerging markets after the latest bout of economic turmoil, according to City analysts.

German banks, which have substantial exposure to Russia, are likely to be worst hit, analysts said. According to figures released by the Bank for International Settlements (BIS), German banks have lent nearly $30bn (pounds 18.6bn) to the troubled region.

Shares in German banks were marked down sharply after the Russian market plunged on what the local media dubbed "Black Thursday".

One analyst commented: "The sector that we are most concerned about is the German banking sector. Russia is not really an issue for other European banks, with the possible exception of Austria."

BIS data shows that banks in Austria have lent around $3.8bn to Russia. Banks in the UK, by contrast, have lent just $584m to the troubled region.

One German banking analyst said: "The jury on Russia is still out, but it wouldn't surprise me at all to see more provisions in the second half."

The renewed crisis in Asia has also sparked worries about bank provisioning. Piers Brown, at Rabobank, said: "There are two areas at the moment where there may potentially be significant problems. The first is Russia, and the other, of course, is Asia."

Data from the BIS shows that Japanese banks are among the most heavily exposed to Asia, with total lending of $123.8bn. Banks in the UK have lent around $30bn. The last banking reporting season saw many European banks up their provisions following "round 2" of the Asian crisis at Easter. With most experts of the view that "round 3" of Asia is now in full swing, analysts expect banks to increase their provisions further this year.

Most analysts agreed that although the German banking exposure to Russia was an issue of concern, the degree of the stock market reaction last week was overdone.

Matthew Czepliewicz, at Salomon Smith Barney, said: "The German banking exposure is, at first sight, a very large $30bn. But when you start to disaggregate it, the figures are less worrying."

Private German banks account for much of the $30bn exposure, according to Mr Czepliewicz, who reckons that the exposure of the major traded German banks comes to between DM6bn and DM7bn (pounds 2bn-pounds 2.4bn).

Of this total, over half is trade related and is guaranteed by German government schemes, according to analysts. Of the remainder, Mr Czepliewicz calculates that "big three" German banks have a combined non-guaranteed exposure of DM2.6bn (pounds 900m). Deutsche Bank has an estimated non-guaranteed exposure of DM1bn, Dresdner Bank of DM700m and Commerzbank of DM900m. And all these banks have already made provisions to cover this exposure, which is broadly spread over a number of different sectors, according to the analysts.

Mr Czepliewicz said: "The market has over-reacted by significantly marking down German bank shares. The same applies to the Austrian banks, which have suffered more unfairly than the Germans." Another analyst, who declined to be named, remarked: "We are of the view that Asia is of more concern than Russia. We expect banks to have to take more cover there. If the yen weakens substantially, or the yuan devalues banks will require significantly more provisions."

Mr Brown, at Rabobank, said: "The Russian exposure issue has been a bit overblown. The exposure [for German banks] is generally lower than in Asia, and it is better covered."

Nevertheless, serious questions hang over the ability of some of the private savings banks to cope with the crisis.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn