As the Russia-Ukraine military conflict rages on, we continue to assess the effects of related economic sanctions, and the broader implications for borrowing conditions, supply chains, and credit quality.
As international sanctions, judicial actions, capital controls, and other payment restrictions increase operating and financial risks and the likelihood of default, we consider a default to be a failure to pay a financial obligation on a full and timely basis—and would lower our issue rating on the debt instrument to 'D' (default), or our rating on the issuer of the debt to 'SD' selective default, or 'D'.
As risks worsen across emerging markets (EMs), the road ahead for their future economic performance will be paved with the uncertainties of the Russia-Ukraine conflict, sustained inflationary pressures, tighter-than-expected financing conditions, and China’s uncertain growth trajectory.
While European banks will likely see lower loan and business growth alongside a limited uptick in costs this year, we believe that European banks will largely be able to manage the resulting effects from the Russia-Ukraine conflict amidst its disruptions to business in certain corporate sectors and pressure on economic growth. Under our base case, our outlook for European banks in 2022 remains broadly stable.
Beyond the devastating human costs, the Russia-Ukraine conflict is disrupting economic conditions and financial and credit markets--with implications for our credit ratings. Since the conflict began on Feb. 24 and the subsequent imposition of strict sanctions on Russia by the international community, many macroeconomic and credit implications have begun to reshape markets and the international order.
As the situation evolves, we will continue to assess the related effects on economies worldwide, the ramifications for financial and energy markets, and the impact on borrowing conditions and credit quality.
The Russia-Ukraine military conflict could have profound effects on macroeconomic prospects and credit conditions around the world. Leading up to, and during, the conflict, Western countries announced stringent sanctions on Russian entities and individuals, and Germany has suspended certification of the Nord Stream 2 gas pipeline.
