RBI suspends dividend and reportedly considers leaving Russia

RBI suspends dividend and reportedly considers leaving Russia
RBI makes around one third of its pre-tax profit from Russia.
By bne IntelliNews March 2, 2022

Raiffeisen Bank International (RBI) – the most exposed Western bank to the looming Russian financial crisis – has suspended its dividend for 2021 and is reportedly making contingency plans to sell its Russian assets.

The Austrian lender’s shares have halved in value since February 9 to around €12.87 by mid-afternoon trading on March 2.

RBI, the second-biggest cross-border bank in the CEE region by assets, said on March 1 that it intends to carry forward its entire net profit for the 2021 financial year. RBI had previously proposed a 2021 dividend of €1.15 per share, after a full-year profit of €1.42mn.

RBI makes around one third of its pre-tax profit from Russia. It has now suspended lending, and under its existing contracts it can force sanctioned clients to repay their loans.

RBI claims a market share of 1.3% in Russia – slightly higher than its nearest competitors, Italy’s UniCredit and France’s Societe Generale – putting it in tenth place. It has been present in the market since 1996 and caters to mainly blue-chip corporate clients

All banks in Russia face huge problems following the imposition of Western sanctions over the past few days, the collapse in the value of the ruble, as well as the move by the Russian central bank to more than double its main interest rate to 20%. Banks will inevitably have to make big provisions for the impact of the looming economic crisis on their clients.

RBI is now looking into leaving Russia, two people with knowledge of the matter told Reuters, a move that would make it the first European bank to do so since the country’s invasion of Ukraine.

However, RBI’s CEO, Johann Strobl, told an investor call on March 1 that the bank doesn’t plan to pull out of the country in the wake of the recent war. Strobl said it was “very important” that everyone understood they weren’t walking away.

Russia’s Prime Minister Mikhail Mishustin has anyway said Moscow would temporarily curb foreigners seeking to sell assets, which would complicate any attempts by RBI to quit the country.

Strobl told the investor call that the bank’s Russian business, which has €22.9bn in assets, had €354mn of exposure to sanctioned financial institutions. There was also €119mn for other sanctioned companies.

RBI’s full-year results presentation shows it had a total exposure of €1.6bn to Russia and €170mn to Ukraine, which it said was mainly booked via its corporates and markets unit at the group level, Reuters reported.

According to Reuters, RBI has invested €2.4bn in its Russian subsidiary. Writing off both would cut just over 100 basis points off the group’s tier 1 ratio – a key gauge of financial strength – of 13.14%, according to Reuters calculations.

The bank has held back €60mn in provisions for potential losses from sanctions and has a €1.4bn euro-rouble hedge position.

RBI has also been increasing its hedging of the Ukrainian hryvnia, as well as boosting liquidity in its Russian and Ukrainian operations in expectation of mass client withdrawals.

Strobl said the Russian business had had a return on equity of roughly 20% over the past eight years. He added that even “in a worst-case scenario, I think the bank in Russia still could make a profit”.

RBI said it would reconsider the dividend at a later date. "Once the current critical geopolitical developments have subsided, the management board intends to reassess the possibility of a subsequent dividend distribution from the retained earnings of the 2021 financial year, taking into account the development of the capital ratios and the economic effects of the conflict," the bank said in a statement.