Europe’s Banks Earmark $710 Million to Brace for Iran War Impact

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(Bloomberg) — Europe’s top banks have set aside hundreds of millions of euros to shield against a financial impact from the Iran war, highlighting how the economic risks for the region are on the rise.

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BNP Paribas SA, Societe Generale SA and Standard Chartered Plc disclosed on Thursday they made provisions in the first-quarter to brace for a potential downturn triggered by surging oil prices and fragile supply chains. 

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That brought the total of disclosed war-related charges to about €610 million ($710 million) during the earnings season so far, according to a Bloomberg tally. The amount also includes BBVA SA, Credit Agricole SA, Deutsche Bank AG and ING Groep NV, which all reported results this week.

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In addition to the loss of life and damage in the region, the Iran war has sent global energy prices higher and disrupted the flow of key goods such as fertilizer. While European banks have limited direct exposure to Gulf countries, their domestic economies face second-round effects.

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“We have used this quarter to increase our provisions in anticipation of a potential deterioration in the economic environment due to the turbulent geopolitical situation surrounding the conflict in the Middle East,” Credit Agricole Chief Executive Officer Olivier Gavalda said. “We are being very cautious.”

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If the conflict continues for an extended period of time, “rising oil prices or even the risk of supply disruptions would have negative consequences for growth in France and Europe,” Gavalda said.

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French banks were among the biggest decliners on the Stoxx 600 Banks Index on Thursday. 

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The economic fallout from the war overcast a quarter in which several banks beat profit estimates. Those with equity trading desks benefited from market swings.

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Still, SocGen CEO Slawomir Krupa said his firm’s debt trading arm “has been affected by the geopolitical situation.”

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The division’s biggest business is European rates, where conditions deteriorated for all banks, he told reporters.

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BNP Paribas and ING suggested that investors shouldn’t necessarily expect them to take such provisions in coming quarters. 

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Provisions for loan losses at the Dutch bank included a “prudent” addition known as an overlay to address possible effects of the war in the Middle East, Chief Financial Officer Ida Lerner said on Bloomberg TV.  

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While ING doesn’t have much direct exposure toward the Middle East, economic growth “is expected to dampen somewhat in Europe,” Lerner said.

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‘Better Prudent Than Late’

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Deutsche Bank AG CFO Raja Akram said on Wednesday his firm may not end up needing its cautionary provision. The German lender had a similar experience with the fallout expected from US trade tariffs last year, he added.

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“Perhaps it’s better to be prudent than to be late,” Akram told analysts.

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Banco Santander SA said it’s premature to set aside money linked to the Mideast conflict.

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“It is still too early to draw conclusions on the geopolitical environment,” CFO Jose Cantera said on an analyst call Wednesday. “As long as labor markets are not significantly affected, we would not expect material impacts on our credit quality targets.”

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—With assistance from Arno Schütze and Sarah Jacob.

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