The European Bank for Reconstruction and Development will probably report its first loss since the global financial crisis due to turmoil in Russia and Ukraine, the bank's Vice President Andras Simor has said.
He said a fall in the value of its Russian equity investments due to the rouble's slide as well as provisions against other losses in both countries meant a loss for 2014 was likely.
The EBRD has suffered only five annual losses since it was created in 1991 originally to invest in the former Soviet bloc countries of eastern Europe, most recently in the crisis years of 2008 and 2009.
Now it faces major writedowns due to the sharp drop in the rouble and Ukraine's currency since Moscow's annexation of Crimea in March, and the plunging price of oil, Russia's main export earner.
Since its creation, the ERRD has expanded beyond the ex-communist countries.
But Russia remains its biggest area of activity with €5.8 billion invested in the country in the form of equities, project loans and other forms of financing.Ukraine is third biggest, behind Turkey, with €3 billion.
About a quarter of the bank's overall exposure is to Russia, with 10% to Ukraine, where an uprising by pro-Russian rebels in the east has helped to shatter its economy.
"The devaluation of the rouble has hit the value of our equity portfolio and we have to accept that," said Simor. "Our role is not only to be there when the sun shines, but also in the storms," he added.
The Russian equity portfolio was worth an estimated €3.2 billion at the start of 2014 but the 35% drop in the rouble against the euro since then will wipe over €1 billion off that value.
Simor, the former head of Hungary's central bank, said this 35% drop would be "a good guide" for the losses its equities portfolio were likely to have suffered.
The overall 2014 shortfall is not expected to be as steep as the near €1.4 billion combined losses in 2008 and 2009, thanks largely to profits made in other countries such as Turkey where the EBRD is building up its presence.
