» Financial firms face increased risks via four main channels: commodity price shocks; business disruption; liquidity tightening and market volatility; and security and operational risks 

» Banks in the Baltics and in the Commonwealth of Independent States are most exposed to spillover effects from the military conflict and have limited buffers to absorb the impact if it is prolonged 

Russia’s invasion of Ukraine is causing a commodity price and supply shock that will lead to higher interest rates and slower growth, increasing risks for banks and other parts of the finance sector, Moody’s Investors Service said in a report today. 

“Under Moody’s baseline scenario, GDP growth for the G-20 economies will be 3.6% in 2022, down from our 4.3% forecast in February,” said Olivier Panis, Senior Vice President at Moody’s. “Growth will further fall to 3% in 2023. Growth could be even lower under a downside scenario assuming a sharp halt in oil and gas exports to Europe from Russia, a liquidity squeeze and widespread economic recession.” 

The finance sector faces increased risks via four main channels: a commodity price shock, led by surging oil prices; business disruption, mainly caused by prolonged supply chain hold-ups; liquidity tightening and market volatility; and security and operational risks. 

“Banks in the Baltics and in the Commonwealth of Independent States are most exposed to spillover effects from the military conflict and have limited buffers to absorb the impact if it is prolonged,” said Panis. “European, African and Turkish banks, aircraft lessors, non-life insurers, US non-bank residential mortgage lenders and business development companies are at highest risk under Moody’s downside scenarios.” 

North American banks and Asian banks have limited sensitivity to the main channels of risk. Given the modest expected slowdown in GDP due to the Russia-Ukraine conflict, Moody’s expects little impact on North American banks’ loan performance. Economic growth in Asia-Pacific will be modestly weaker than previously anticipated due to the surge in energy costs and slower growth in key export markets in North America and Europe. The impact on the region’s banks will be limited, thanks to their solid capital and liquidity. 

Subscribers can access the report at: http://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBC_1323908