Russia-Ukraine tensions pose credit default risks: IMF - The West Australian

AFPRussia-Ukraine tensions pose credit default risks: IMF

Washington (AFP) - The International Monetary Fund warned Tuesday that an escalation of tensions between Russia and Ukraine would raise the risks for banks exposed to those countries.

Hit by US and European Union economic sanctions against Moscow, Russian businesses in particular could see financing and revenue dry up, pushing them to fall behind in servicing debts.

"As Russian and Ukrainian credit quality deteriorates, banks with credit exposures will be faced with increased risks of default," the IMF said in a report on financial spillovers in the global economy.

Austrian banks are the most exposed relative to their bank asset size. And any problems affecting them could spread through credit channels in the rest of emerging Europe, the report said.

In addition, French, Italian and Swedish banks have relatively larger exposures compared with banks in other advanced economies, said the report, which did not identify any bank by name.

While the conflict between Kiev and pro-Russian separatists has remained confined to eastern Ukraine, escalation could have global repercussions, the report warned.

"An escalation of tensions through intensification of sanctions and retaliations may lead to larger spillovers across Europe, central Asia, and beyond."

Last Thursday the IMF lowered its 2014 growth forecast for the global economy, to 3.4 percent from 3.7 percent, citing geopolitical risks in Ukraine and the Middle East. It slashed Russia's growth forecast by 1.1 percentage points to a mere 0.2 percent.

In the new spillover report, the IMF highlighted the "significant risk" of sharp disruptions in the supply of Russian natural gas to Europe, with Russia providing about one-third of Europe's gas needs and half of that transiting Ukraine.

Most central, eastern, and southeastern European countries are heavily reliant on Russian gas, which represents between 40 and 100 percent of total gas consumption, the report said.

In the 18-nation eurozone, Austria, Finland and Germany also are largely dependent on Russian gas imports.

Germany, Europe's economic powerhouse, depends on Russian gas for 40 percent of its gas consumption, of which almost three-quarters comes through Ukraine.

The IMF noted that the Ukraine crisis has not had much effect on gas prices, but that metals prices jumped soon after it began.

Russia produces about 40 percent of the world's palladium and between 12 and 14 percent of nickel, both of which are "central" to certain industries, it said. After Russia seized Crimea in early March, prices for both jumped around 10 percent by the end of April.

In the oil market, where Russia produces more than 10 percent of the world's crude oil, prices have been relatively stable in spite of heightened tensions.

"However, crude oil prices could suddenly spike amid rising geopolitical tensions, depending on market conditions such as the size of oil inventories," the IMF cautioned.

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