PROFIT INSIGHT®, an international consulting firm specializing in earnings optimization for the financial services industry, believes the effects of the Russian – Ukraine conflict are yet to be felt to their greatest extent by banks in the EU and the United States, but those effects will likely be coming soon.
Many of the banks in the Ukraine are branch operations of EU-based financial institutions, and virtually all of the banks in both Russia and the Ukraine are suffering from cash shortages as a result of a general lack of business confidence, companies reining in borrowing requirements and a massive devaluation in both currencies over the last six to nine months. Recently announced financial defensive measures, such as hugely increased security deposits and a new homegrown domestic credit card processing platform to be put in place by Russian President Vladimir Putin, have now been delayed, but they also have great disruptive potential for much of the global banking community, according to PROFIT INSIGHT senior executives.
George White, the London-based president of PROFIT INSIGHT for EMEAR (Europe, Middle East, Africa and Russia), has witnessed many complex geopolitical and economic changes during his 30 years in international financial services. He sees the growing crisis in Russia and the Ukraine as a major potential trouble spot for financial institutions in his area of responsibility, as well as for U.S. financial institutions as tit-for-tat embargoes and sanctions start to bite. “Many of the banks operating in Russia and in the Ukraine are European, and as they run low on cash due to a combination of currency devaluation, economic sanctions and waning consumer confidence, they must tap reserves held within the EU,” White points out. “Losses on loans and other lines of business have been significant in the Ukraine, particularly in Crimea because of the conflict, further complicating things for banks.”
White cites several factors that are worsening the situation in Russia. “The rouble has lost 48 percent of its value against the dollar this year due to sanctions and stymied economic growth in Russia,” White says. “The failure of the ceasefire in eastern Ukraine, the global drop in oil prices and the growing strength of the dollar make it difficult to refinance corporate debt in Russia, further weakening the financial outlook,” he notes. “The impact for all banks doing business in the region, as well as for many others in our globally interdependent financial community, is on the way.”
White also points to the all-important credit card business, which essentially connects every country in the world as a vehicle for trade and is a major source of income for the global banking community. “The U.S. government froze all Visa and Mastercard transactions for 48 hours early in the conflict, and that caused an huge ripple effect throughout the region,” White says. “It spurred Putin to order the creation of Russia’s own card payment scheme that would bypass the Visa/MasterCard systems and insulate Russia from such freezes in the future. While it remains to be seen whether it will be successful, it nevertheless will have extensive impact on Visa and MasterCard, and by extension, their member banks,” he says. “There have also been indications that Russia may embargo various U.S. trade goods and services, with an accompanying impact on financial services like trade lines, inventory financing and other revenue channels.”
White says that PROFIT INSIGHT is preparing a white paper about the potential for costly, disruptive ripple effects that can damage banks in the west and elsewhere. “We’re discovering that there are going to be significant effects to card services, decreased lending in many regions and an expected increase in bad debts as banks try to survive the crisis,” he says. “We are recommending that financial institutions prepare now to maximize revenue sources and efficiencies within their organizations that can help shore up anticipated losses due to the instability.”
PROFIT INSIGHT has been working with banks for over 40 years to optimize every facet of their businesses, from deposits to operations, credit cards to loans. During that time, the company has helped create over $40 billion in value for financial institutions on six continents, receiving much of its compensation based on the cost savings and revenue improvements it enables clients to realize. “Bank revenue optimization is often overshadowed by new opportunities that arise,” White says. “At this stage of the situation in Russia and the Ukraine, however, banks need to think about ways to find revenues apart from new business generation alone and look inward to reveal those opportunities.”