The EBRD is accelerating the winding up of its Russian portfolio as the institution gets set to reject Moscow’s efforts to overturn the ban on new investment in the country.

The EBRD’s Russia portfolio, its second largest after Turkey, has shrunk by 30% to €3.77bn from €5.35bn a year ago, according to data available on the lender’s website. The bank is still involved in 788 projects but the run-off in the portfolio is clearly accelerating, as assets had been worth €6.3bn in mid-2015.

Several well-placed EBRD sources told bne IntelliNews a year ago that the international financial institution was poised to start winding up its operations in Russia if the European Union renewed its sanctions against the Kremlin for the seizure of Crimea and its involvement in the Ukrainian conflict. EU and US sanctions have since been rolled over and any hope of a rapid rapprochement with the West has faded.

“The bank is trying to get out of Russia by stealth to focus on other countries in need,” an EBRD alumnus told bne IntelliNews. “The Kremlin is well aware of that strategy but there’s nothing they can do apart from kicking up a stink.”

More than half of the Russia portfolio is made up of debt, with the remainder comprising public and private equity investments. About 83% is invested in the private sector, with just 17% in state-controlled entities.

Debt write-offs may well have been carried out in the past year as the website indicates that the last equity disposals in Russia were the sale of two stakes in the retailer Lenta in 2015.

Representatives from EBRD’s press service in Moscow and London didn’t return emails seeking comment.

The London-based lender was set up in 1991 by Western governments to help former communist countries make the transition to capitalism. Two years have now passed during which the bank brought no new projects to Russia – once the single largest recipient of annual funding – after a majority of the shareholders decided to halt new funding in July 2014, following Russia’s annexation of Crimea from Ukraine.

The EBRD is owned by 65 countries, the EU and the European Investment Bank, but the countries with the largest stakes are Germany and the UK with 9.5% each, and it’s said that politicians from the major European capitals exert great influence over the bank’s Russia policy. The US, which is much more strongly opposed to active EBRD involvement in Russia, also carries great weight.

No change

The bank had a staff of about 80-90 in Moscow a year ago, but that headcount is believed to have been reduced. Some have been reassigned to work on Kazakhstan and other countries in Central Asia since the freeze on new Russia investments. The lender had seven offices across Russia but it’s unclear whether some of those have now been shuttered.

Many EBRD projects in Russia are aimed at the country’s regions, where a two-year recession hit home the hardest. Structural priorities include support of technological modernisation of non-energy sectors, science-intensive and high-tech production, transport and municipal infrastructure.

The EBRD’s president Sir Suma Chakrabarti told the press on May 2 that the bank is expected to reject Moscow’s latest effort to end a ban on new investment in Russia. The freeze is likely to be discussed at this month’s EBRD annual summit in Cyprus, with Moscow arguing that the ban contradicts the bank's internal rules.

The EBRD board, which consists of national finance ministers and central bankers, already rejected a similar appeal last year.

"This situation was discussed last year by our board and there was no change then to the guidance [not to invest in Russia]," Reuters quoted Chakrabarti as saying. "Let's see how it goes in Nicosia. I'm not expecting it to be very different," he added.

More than 40 events, discussion panels, press briefings and special meetings will make up the programme of the annual conference taking place in Nicosia from May 11 to May 12. However, it is striking that the programme for the EBRD annual meeting doesn’t have any Russia-themed sessions like in previous years.

One of the most prominent speakers this year will still be Herman Gref, chief executive of Russia’s largest lender, Sberbank.

Gref, a former economy minister under President Vladimir Putin, is a close associate of Sergei Guriev, the EBRD’s chief economist.

Guriev, a highly respected Russian academic, is part of a liberal intelligentsia who fled Russia following increased persecution from the state. A former rector of the New Economic School (NES) in Moscow, Guriev said in 2013 that he wanted to escape pressure from a new criminal investigation of those around jailed tycoon Mikhail Khodorkovsky, once the country’s richest man before his oil group Yukos was broken up by the government.

Guriev remains very critical of the Putin regime while Gref, who remains on the liberal wing of the Kremlin’s wider team, was one of the few public figures to support Guriev three years ago. The Sberbank boss resisted pressure to remove Guriev from the lender’s board and even arranged Skype sessions to connect him from Paris for board meetings.