UK banks are the least exposed to Russia as financial contagion begins to set into European markets, according to Berenberg.
The broker said the UK’s minimal presence in Russia and fewer borrowing links, in addition to a slightly better macroeconomic outlook, left them in a stronger position.
Bereneberg pointed out UK banking shares had contracted 20% since 11 February, compared to 27% in parts of the Eurozone.
“This 7% outperformance versus eurozone peers is warranted, in our view, given they have no known meaningful direct exposures and face a less disturbed outlook for central bank rates,” the broker said.
“We maintain a preference for the domestic UK banks and are Buy-rated on NatWest Group PLC (LSE:NWG) and Barclays PLC (LSE:BARC).”
Berenberg also pointed out Standard Chartered PLC (LSE:STAN) had no meaningful exposures to Russia, while HSBC PLC (LSE:HSBA)’s small operation in the country was regarded as negligible, equivalent to 0.5% of tangible net asset value.
This assessment diverged with European banks, where Berenberg pointed out Italy and France both have high direct risks, as tempered ECB rate hike expectations hurts banks' interest margin outlooks.
Berenberg said the major risks facing European banks came in the form of potential losses on exposures to Russian and Ukrainian counterparties.
“This can take the form of conventional credit risk, where the economic consequences of the conflict mean that borrowers can no longer afford to repay their liability,” Berenberg said
“The value of any collateral underlying Russian or Ukrainian claims may also be lower.”
The broker also said sanctions meant exposed banks may be unable to recover any claims or underlying collateral from recalcitrant borrowers.