After Vladimir Putin's invasion of Ukraine, the Austrian Bank Raiffeisen announced the possibility of selling his business in Russia. 27 months since then the bank's unit in the country continued to work successfully. The number of employees increased to almost 10 thousand, which is 7% more than in 2022. Last year, the profit reached 1.8 billion euros-more than any other subsidiary of the bank, and has tripled since 2021.
Raiffeisen is one of the ten creditors that Russia considers "systematically" important to its economy. The Bank also matters for the Kremlin's finances, as it paid a tax equivalent to half a billion dollars last year.
Raiffeisen is the largest Western bank in Russia but not the only one. The total profit of the five EU banks, which has the largest Russian operations, has increased three times and will be almost € 3 billion in 2023. The success of these banks puts them in the center of attention. In May, the United States threatened to limit Raiffeisen access to its financial system through his Russian operations. Trying to reassure critics, on June 10, the Bank plans to stop dollar transfer from Russia.
For its part, Russia can begin to arrest the assets of Western banks, which it considers "unfriendly". Some European banks, such as the French Société Générale, sold their Russian units at the beginning of the conflict. Although the remaining people reduced the staff by only 3%, their portfolios have decreased significantly.
Raiffeisen retains a significant proportion of assets in Russia - 15 % compared to 5 % in Unicredit, which takes the next step. But he also reduced his credit portfolio by 58 % and stopped making new loans. Prolonged profit can be explained by the difference between the interest rates that banks pay to depositors and the Russian Central Bank rates. The latter is 16 %, almost four years ago.
In 2022, predicting a rapid influx of Russian defaults, banks created huge reserves for loans. When the expected fall in the level of hopeless debts did not occur, these reserves were written off, which contributed to the increase in profit.
The sanctions were destroyed by most Western competitors, so European banks, including Raiffeisen, were winning. After the war, the deposits of the Austrian lender increased sharply, despite the low rates. This is due to the fact that Russian depositors prefer to keep some of their funds in Western banks in case the domestic collapses. The lender also plays an important role in promoting foreign companies in moving money to and from Russia: in February last year, almost half of all payments with the rest of the world fell on its share.
The problem for European banks in Russia is that they have few ways to go. Ideally, they should sell local units to other foreign companies, but few are interested in acquiring such a difficult business geopolitical point of view.
The sale of Putin to the locals require Putin's approval, and in view of the context, any agreements are unlikely to be concluded at a fair price. Most recent attempts to complete sales either have been delayed or collapsed.
Thus, European banks have the last option: to continue to curtail their Russian portfolios. But even it is far from easy, and not only because of increased attention from Western regulators.
In May, the Russian court ruled to arrest the assets of Commerzbank and Deutsche Bank, two German creditors, because of their participation in a gas projected. As part of a parallel claim, the court also arrested the assets of the Italian Bank Unicredit.
All this means that many Western units in Russia will be at least partially written off. European banks will have to pay a high reputational price, and the payment is unlikely to be justified.
