SocGen points to the cost of the Ukraine war with higher provisions for bad loans

The French bank Societe Generale has announced that it will leave Russia.

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French lender Societe Generale said Thursday the war in Ukraine would incur additional costs as more customers default on their loans, underscoring the deepening economic damage in Europe.

France’s third-largest listed bank, which announced a rise in net income as its domestic retail arm thrived and trade improved, said it had increased provisions for bad loans because of the conflict.

SocGen said it now expects its cost of risk, which reflects provisions for bad loans, to reach 30 to 35 basis points, or 1.7 to 1.9 billion euros ($2.02 billion), in 2022, rather than like originally expected below 30 basis points.

These costs are in addition to previous depreciation. The bank recently said it was leaving Russia and is now selling its local branch Rosbank, writing off around 3.1 billion euros.

“We have provisions for our onshore business in Russia that will essentially disappear with the assets once the sale is complete, and then we have the offshore exposure where we have £2.8 billion [euros] in terms of our global banking and investment banking business there,” Slawomir Krupa, deputy CEO of SocGen, told CNBC on Thursday.

“There is a lot of ECA here [export credit agency] secured, structured loans, secured exposures where we think we have less than a billion [euros] a genuinely at-risk exposure, so largely manageable and to date with very few actual defaults or actual problems, but we are prudent in our risk preparedness.”

SocGen helped offset this with strong trading. Sales in stock trading rose by almost 20 percent to over 1 billion euros.

In the first quarter, SocGen’s net income rose 3.4% to €842 million, while revenue rose 16.6%.

Still, the exit from Russia reduced the bank’s capital cushion. The CET1 capital ratio, an important measure of capital strength, had fallen to 12.9% at the end of March.

SocGen this month became the first major western bank to announce its withdrawal from Russia, with a plan to sell its Rosbank unit to Interros Capital, a firm linked to Russian oligarch Vladimir Potanin.

Rosbank will rejoin the business empire of Potanin, the 61-year-old head of mining giant Norilsk Nickel, who was sanctioned by Canada under Western sanctions on Russia’s business and political elite over Ukraine.

The €3.1 billion financial damage is made up of a €2 billion hit to Rosbank’s book value, with the remainder related to the liquidation of ruble conversion reserves. Investors took the news with relief.

Moscow calls its actions in Ukraine a “military special operation”.

CNBC contributed to this report

https://www.cnbc.com/2022/05/05/socgen-points-to-cost-of-ukraine-war-with-higher-bad-loan-provisions.html SocGen points to the cost of the Ukraine war with higher provisions for bad loans

Gary B. Graves

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