The impact of Ukraine on European alternative lending

This is an excerpt from AltFi’s Alternative Lending State of the Market Report 2022, which is available for free here.

In the days after Russia invaded Ukraine, alternative lenders were faced with several pressing questions: what, if any, financial exposure did they have to the region? What were the consequences of having staff in the region? And would Russian sanctions impact them?

As lenders grappled with these issues, other questions raised by the conflict arose over time, like the economic impact on lenders of rising oil prices and a potential global food crisis.

Josh Levy, CEO of alternative lender Ultimate Finance said: “Whilst the knock-on effect of further supply chain disruption and inflationary pressures feeds into elevated credit risk, both lender appetite and the supply of finance appear to have remained strong.”

“That said, the short-term price shock from Russia’s invasion has had ripple effects that will leave a lasting impact on the global lending market with new credit risks, anticipated medium-term economic weakness, and Central Banks around the world looking to offset inflationary pressures with higher interest rates which are raising the cost of capital and will likely cause a persistent softer environment for investment and spending decisions.”

Lenders With Exposure

In April this year, Amsterdam Trade Bank (ATB), a subsidiary of Russian financial giant Alfa Bank, Russia’s largest private bank, went bust after it was hit by sanctions in response to Russia’s invasion of Ukraine.

ATB was known for trade financing and in recent years had become a lender to small and medium-sized companies. It was also a multi-million-pound financer of other fintechs and last year advanced a credit line of up to  €60m to Irish lender Onate while German lender Creditshelf increased its loan volume with the bank from €60m to €120m.

Onate said that its “lending capital comes from many individuals and entities” and it expected that the sanctions on ATB would have “no impact to our lending operations”. Creditshelf told Finanz-Szene: “We are in close contact with ATB to discuss further steps. Creditshelf would like to stop future cooperation with Amsterdam Trade Bank beyond the €120m altogether.” Potentially, Creditshelf faces a funding gap and might need to find new refinancing partners, as may other fintechs funded by the bank.

Charles Delingpole, founder and CEO of ComplyAdvantage, said: “The influence of Russian money across venture capital and alternative lending is pervasive. Recently sanctioned entitles such as Amsterdam Trade Bank played an important role in fintech infrastructure funnelling significant amounts of cash to a variety of lending companies who now have to deal with the frozen funds which have to be delicately handled and then replaced.”

“Coming at a time when funding costs and the broader regulatory burden for alternative finance is increasing, this presents a perfect storm for alternative finance companies where only the strongest will prosper.”

Want to keep going? Read the full feature in AltFi’s Alternative Lending State of the Market Report 2022, out now!