While European and American authorities are asking repeatedly European banks to exit business in Russia, Unicredit and Intesa SanPaolo included, the Austrian bank Raiffeisen he doesn't give up and, in fact, he has increased his business since the beginning of Putin's invasion of Ukraine over 2 years ago. The magazine highlights this in a report The Economist.
Russia considers Raiffeisen "systemically important" for its economy
Although, a few days after the outbreak of the conflict, Raiffeisen declared that it wanted to sell its assets in Russia, twenty-seven months later, the bank's unit in the country is doing quite well, says the English magazine. His staff has grown to nearly 10.000 people, with a del% increase 7 from 2022. Last year his profits they reached 1,8 billion euros (2 billion dollars), more than any other branch of the bank and tripled compared to 2021. Raiffeisen is one of twelve credit institutions that Russia considers “systemically important” for its economy. The bank is also important to the Kremlin's finances, having paid the equivalent of half a billion dollars in taxes last year.
Taxes paid to Russia by Western banks: 800 million. Including Unicredit and Intesa SanPaolo
Raiffeisen is the largest Western bank in Russia, but not the only one. According to a recent report from Financial Times, major Western banks operating in Russia have paid over to the Russian government 800 million euros in taxes in the last year, a sum four times greater than pre-conflict levels. These taxes represent 0,4% of Russian non-energy revenue in 2024. Foreign companies present in the country thus contribute to maintaining Russia's financial stability, despite sanctions.
Among banks involved they appear Raiffeisen Bank International, Unicredit, Ing, Commerzbank, Deutsche Bank, Otp and Intesa Sanpaolo, which they recorded overall earnings of over three billion euros in 2023, tripling profits compared to 2021, partially due to capital trapped in the country, says the FT. These profits are partly generated by funds that banks cannot withdraw from the country.
Raiffeisen maintains significant exposure, with 15% of its assets in the country, compared to for example UniCredit's 5%, he says The Economist. During 2022 and the first months of 2023, Unicredit's cross-border exposure to Russia was reduced, at minimal costs, by a total of approximately 66%, or approximately €4,1 billion. A strategy also followed in the following quarters. As recently as last month, America threatened to limit Raiffeisen's access to its financial system over the bank's Russian operations.
How do you explain the continued profit?
An answer, he says The Economist, lies in the gap between the thin interest rates that banks pay to depositors and those of the Russian central bank. The latter stands at 16%, almost four times higher than three years ago. Another answer is technical. In 2022, anticipating a wave of Russian defaults, banks made large provisions for credit losses. After the invasion, the Austrian lender's deposits skyrocketed, even as it kept rates extremely low. The lender has also played a crucial role in helping foreign businesses move money to and from Russia, accounting for almost half of all payments with the rest of the world in February last year.
Profits, however, are difficult to repatriate
However, this type of business is only profitable on paper, since i profits are difficult to repatriate. Russia has strict capital controls that prevent banks from moving cash. At the same time, the huge profits on paper are attracting the attention of American and European regulators. Last month several lenders received a letter from European Central Bank which invited them to reduce their exposure to Russia. The supervisory authority "urges banks to accelerate their exit from Russia, given the increase in reputational, legal and financial risk", explained the former head Andrea Enrico in one of his latest releases last year.
The problem of European banks in Russia is that they have few ways out. The ideal would be to sell the local units to other foreign companies, but few are interested in taking over such geopolitically complicated businesses. There sale to locals requires Putin's approval, and given the context, any deal is unlikely to be done at a fair price. Most recent attempts to complete sales have dragged on or failed. This leaves European banks with one last option: continue to reduce their Russian portfolios. But even this is far from simple, and not just because of increased scrutiny by Western regulators.
In May a Russian court ordered the seizure of the assets of Commerzbank and Deutsche Bank, two German lenders, over their involvement in a gas project that was canceled after the invasion. In a parallel case, the court also seized assets belonging to UniCredit, All this means that it is very likely that many Western units in Russia will end up at least partially devalued. European banks risk paying a high price in terms of reputation, and the profit is unlikely to be worthwhile.
