Ukraine conflict poses growing risk to financial sector: Moody’s

By James Langton | April 8, 2022 | Last updated on April 8, 2022
2 min read
Map of Ukraine

As the war in Ukraine rages and drags on the global economy, the impact on the world’s financial institutions is growing, says Moody’s Investors Service.

“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 said in a report.

This deteriorating economic situation “is having widening repercussions for financial institutions across the globe,” it noted.

Specifically, the report said the financial sector faces increased risks from surging oil prices, business disruption from supply chain hold-ups, liquidity tightening and market volatility, and security and operational risks.

Already, the conflict is weighing on global growth prospects.

Moody’s said it now expects GDP growth for the G20 to slow to 3.6%, down from its previous forecast of 4.3%. Growth is expected to slow further in 2023 to 3%.

Downside risks are elevated too, with the increased threat of recession.

“Banks closest to the epicenter of the conflict are most exposed,” the report said.

This includes banks in the Baltic region and in the former Soviet republics, which have the closest geographic and economic links to Russia.

“They are most exposed to spillover effects from the military conflict and have limited buffers to absorb the impact if it is prolonged,” the report said.

U.S. and Canadian banks are generally well insulated from the crisis, the report noted, adding that the loan performance of North American banks shouldn’t see much impact.

However, in gloomier economic scenarios, the effects could broaden to other segments of the financial industry, such as non-bank residential mortgage lenders and European banks.

A recession in Europe “would severely weaken loan quality and profitability at European banks,” the report said, while rising interest rates would hit mortgage lenders in the U.S.

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James Langton

James is a senior reporter for and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.