Citigroup's far-flung operations complicate its risk management. Image source: iStock/Thinkstock.

Citigroup (C -1.78%) has never been a bastion of stability, but it's particularly volatile when economies around the world face turbulence. Unlike its more domestic-oriented peers such as Bank of America and Wells Fargo, Citigroup cuts its teeth lending to businesses and consumers all around the world.

This is clear when you look at its loan portfolio, which it breaks down into consumer and corporate loans. With respect to the former, according to its latest 10-K, 38% of Citigroup's $370 billion in consumer loans are held in its offices outside the United States. These are split between mortgage and real estate loans, consumer installment loans, and credit cards.

An even larger share of its corporate loans stem from abroad. According to the same filing, which provides the most detail about its loan portfolios, more than half of its corporate loans, or 51%, are held in its offices outside the United States.

Data source: Citigroup's 2014 10-K, page 72.

Aside from the risk of default, which is inherent in any loan irrespective of its geographic origin, global operations like these expose a bank to "country risk." Here's how Citigroup defines the term:

Generally, country risk is the risk that an event in a country [...] could directly or indirectly impair the value of Citi's franchise or adversely affect the ability of obligors within that country to honor their obligations to Citi, any of which could negatively impact Citi's results of operations or financial condition. Country risk events could include sovereign volatility or defaults, banking failures or defaults and/or redenomination events.

The ongoing crisis in Russia serves as a case in point. Since the middle of 2014, the Russian ruble has lost 52% of its value thanks to low oil and gas prices, which the Eurasian country relies on to support its economy. The precipitous decline in its currency makes importing goods vastly more expensive, helping to trigger a deep recession. In the third quarter of 2015, its GDP contracted by 4.1% -- though estimates of its fourth quarter show this trend beginning to turn around.

Data source: OANDA.

This isn't as big of a concern for a bank like Wells Fargo or Bank of America, neither of which looks to the country for much business, but the same can't be said of Citigroup. Even after paring its exposure over the past two years, it still had $5.2 billion worth of gross exposure at the end of the third quarter last year -- though, as the bank explains below, after netting it equates to less than $1 billion in exposure. Here's how Citigroup explained this in its most recent quarterly filing with the SEC:

Continued unrest in the region, lower oil prices and international sanctions are having a significant impact on Russia's economy. The Russian ruble depreciated by 16% against the U.S. dollar from June 30, 2015 to September 30, 2015.

Citibank operates in Russia through a subsidiary, which uses the Russian ruble as its functional currency. Citibank's net investment in Russia was approximately $0.9 billion at September 30, 2015, compared to $1.2 billion at June 30, 2015. Substantially all of Citibank's net investment was hedged (subject to related tax adjustments) as of September 30, 2015, using forward foreign exchange contracts. Total third-party assets of the Russian Citibank subsidiary were approximately $5.0 billion as of September 30, 2015, compared to $4.6 billion at June 30, 2015. These assets were primarily composed of corporate and consumer loans, Russian government debt securities, and cash on deposit with the Central Bank of Russia. The large majority of the above assets were funded by local deposit liabilities.

The point here isn't that the turmoil in Russia will significantly impair Citigroup. The point is rather that Russia is one of many global regions that the New York City-based bank is exposed to. Between Mexico, Korea, India, Hong Kong, and Singapore, for instance, it has $173 billion in country risk. And the list goes on.

In short, of all the big banks, country risk makes Citigroup the most complicated to analyze and understand. This doesn't necessarily mean that investors shouldn't salivate over its especially low valuation. But it does mean that its shares are cheap for a reason.