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SocGen's Russian Exposures Add New Challenges After Record Profits in 2021

DBRS Morningstar has released a commentary discussing SocGen’s Russian exposures and the potential impacts of the Russia-Ukraine conflict.

Key highlights:

• DBRS Morningstar expects the profitability of SocGen's operations in Russia to be significantly affected by the current situation given the extent of the military action and the sanctions being imposed. However, we still expect this will be manageable for SocGen at Group level, given the limited contribution of Russia to revenues and profits.

• We expect a rise in non-performing loans (NPLs) and defaults accompanied by an increased levels of provisions for Russian exposures. Nonetheless, we note that the Russian operations are starting from a place of relatively sound risk metrics. In addition, we also note that 80% of retail exposures are secured, which mitigates the risk.

• Whilst still not the most likely scenario, a write-down of SocGen’s Russian subsidiary would impact the CET1 by around 30 bps.

“In a worst case scenario involving the write-down of SocGen’s Russian operations, we estimate the impact on the Group’s CET ratio at around 30 bps. Whilst we view this impact as manageable given SocGen's phased-in CET 1 ratio of 13.7% at end-2021, we would expect it to put pressure on the Group, noting that a loss reported in 2020 led to a reshuffling of the equities business and further rationalisation of the retail operations. Nevertheless, we also note the Group's ability to adapt to challenging situations as demonstrated by the Group's subsequent strong performance in 2021.” said Arnaud Journois, Vice President, European Financial Institutions.