Raiffeisen says pressure to cut Russian loanbook will complicate exit

Raiffeisen says pressure to cut Russian loanbook will complicate exit
RBI has been criticised for dragging its feet over exiting Russia. / RBI
By bne IntelliNews May 7, 2024

Raiffeisen Bank International (RBI), the largest remaining Western bank in Russia, has suspended its full-year target numbers after the European Central Bank (ECB) demanded that it accelerate the reduction of its loanbook in Russia.

RBI is under increasing pressure – both from the ECB and the US authorities – to wind down its loanbook in Russia, if not exit the country altogether.

The Austrian lender, however, has been criticised for dragging its feet. According to a recent Financial Times report, the bank was even stepping up recruitment of staff in Russia.

RBI makes 45% of its profits in Russia – although it cannot take them out of the country – and appears wary of jeopardising its future earnings potential by selling off its Russian operations cheaply.

The Russian authorities demand that any sales are made at a significant discounts, reduced still further by a special levy.

RBI has said that it is preparing for a potential exit from the Russian market but has not named any specific dates.

It would like to sell out to another foreign bank to avoid selling to a bank close to the Kremlin.

RBI pleads that Western companies in non-sanctioned sectors rely on its SWIFT services to continue to operate, and that exiting will be a very complicated operation.

These arguments don’t appear to cut much ice with bank regulators. RBI announced last month that the ECB had demanded a two thirds decrease of the loan book compared to 3Q23, which the Austrian lender said might complicate its potential exit from the Russian market.

According to Bloomberg, that would mean cutting loan volumes in the country to about €2.2bn from €6bn at end-September and as much as €13.7bn in June 2022.

A planned €1.6bn exchange deal to release some of the bank’s profits in Russia also appears to be unacceptable to regulators.

RBI had hoped to exchange €1.6bn of the bank’s trapped profits in Russia with a 28% stake in Austrian construction company Strabag that is reportedly owned by sanctioned Russian oligarch Oleg Deripaska.

After US authorities questioned the transaction, raising the threat of sanctions, the Austrian central bank warned RBI, and the bank has now appeared to backtrack.

Chief Executive Johann Strobl told a Q1 earnings call last week, “We will not proceed with the acquisition of the Strabag shares by Raiffeisen Bank Russia if we believe there is a risk of sanctions”.

In those results, RBI reported a consolidated profit of €664 million in Q1 but only €333mn excluding contributions from Russia and Belarus. The bank made provisions for Swiss franc loans in Poland totalling €109mn.

RBU increased its net profit in Russia by 8.2% year-on-year to €326mn in 1Q24. The bank’s profit grew despite a 21.9% decline in assets in Russia, to €21.1bn, and a 28.2% decline in the loan portfolio to €5.8bn. Net fees and commissions in Russia also fell € 287million.

RBI’s return on equity (ROE) in Russia in 1Q24 was 29.1%, which is higher than that of Russia’s two largest state-controlled banks Sberbank and VTB (24.2% and 22.1% respectively).