Irish bank with most exposure to Russia plunges to over €166m loss

The most exposed Irish-based bank to Russia, Intesa Sanpaolo Bank Ireland, plunged to a €166.8 million pretax loss last year, driven by loan impairment charges as it downgraded the creditworthiness of Russian corporate borrowers amid the war in Ukraine.

The Dublin-based, but Italian-owned bank, whose origins can be traced back to the establishment of the IFSC in 1987, booked an almost €151 million loan loss provision against €454 million of loans to Russian customers last year, according to its latest set of accounts.

The lender had cut its gross loans to Russian clients from €704 million for the previous year — when they accounted for more than half of all loans — as part of a strategy by the wider Intesa Sanpaolo Italian banking giant to reduce its exposure to Russia. Still, Russian entities continued to account for a third of Intesa Sanpaolo Bank Ireland’s total of €1.32 billion of loans as of the end of 2022.

Connected parties

“The geo-political events affecting Russia had an impact on the bank due to our credit exposure to Russian entities and connected parties,” Intesa Sanpaolo Bank Ireland said in the report. “In line with the group strategy, the conflict resulted in an immediate cessation in lending activities with counterparties domiciled in Russia and connected parties with an objective of disinvestment of exposures.”

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Intesa Sanpaolo Bank Ireland is alone among the 17 domestic and overseas-focused Irish banks licensed by the Central Bank of Ireland to report material exposures to Russia in their most recent sets of annual financial statements.

Its €704 million of loans to Russian customers equated to two-thirds of the €1.11 billion assets linked to Russian entities reported by Irish-based lenders to the regulator as of the end of 2021. The Central Bank disclosed the overall figures in early March last year as it outlined the wider links of the Irish financial sector to Russia, weeks after Vladimir Putin ordered the invasion of Ukraine.

Irish-based special purpose vehicles and funds accounted for 97.5 per cent of assets linked to Russian entities in the Republic at the time.

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The wider Milan-based Intesa Sanpaolo group, Italy’s largest banking group with almost €1 trillion of assets, created by the merger in 2010 of Banca Intesa and Sanpaolo IMI, booked €1.4 billion of provisions and asset write-downs for exposures to Russia and Ukraine last year.

“Immediately following Russia’s invasion of Ukraine, the Intesa Sanpaolo Group stopped all new financing in Russia. In just six months, we reduced our Russia exposure by nearly 70 per cent, taking action to quickly become a zero Russia exposure bank,” said a spokesman for the bank.

‘International context’

“Intesa Sanpaolo Bank Ireland plc played an important role in this strategy. Our Irish subsidiary will continue to be part of the group’s activities in the new international context, particularly in corporate and investment banking.”

The group’s total exposure to Russia fell from €3.2 billion last June to €1 billion in December, net of provisions and guarantees by export credit agencies. Domestic Russian loans at its local banking unit halved to the equivalent of €200 million.

The almost €151 million impairment charge taken by the Irish unit came as it downgraded the credit standing of all Russian and related parties in its internal models. Since the end of 2022, Intesa Sanpaolo Bank Ireland sold loans that were out to an unnamed Russian company for €16.9 million, and, at the end of January, it was paid €21.7 million of capital and interest from another Russian corporate that had been overdue as of December.