Raiffeisen Bank again intends to withdraw from russia. How the banking group is being pushed to leave the rf market
And why the Austrian bank does not hurry to make such a decision
On 23 March 2023, the National Agency for the Corruption Prevention (NACP) announced adding the Austrian-based banking group Raiffeisen Bank International (RBI) to the list of international sponsors of war. "One of the largest Austrian banking groups is present in 14 countries of Central and Eastern Europe, serving 17.2 million customers. The reason for the listing... was that after russia's full-scale invasion of Ukraine, the bank continued its operations in russia, and Raiffeisen also officially recognised the so-called DPR and LPR," the NAPC said in its statement.
The Raiffeisen Group is trying to distance itself from the armed conflict in Ukraine, insisting on its support for the territorial integrity of our country and promising to wind down its operations in russia.
Mind analysed what exactly are the claims against Raiffeisen Group and how this may affect it and its subsidiary in Ukraine, in particular.
What is the RBI Group? Raiffeisen Bank International is one of the leading Austrian banking groups. The first Raiffeisen Bank appeared in Austria in 1886, and over the next 10 years, the financial institution opened about 600 branches.
The group began to expand beyond its home market only in the late 1980s. Today, Raiffeisen Bank International is represented in 14 other countries other than Austria. Most of them are in Central and Eastern Europe.
The group has been operating in Ukraine since 2005, when it became a shareholder in Bank Aval. The Ukrainian subsidiary has been called Raiffeisen Bank since June 2021. The Raiffeisen Group appeared in r ssia earlier, in 1996. The russian subsidiary’s name is Raiffeisenbank. In russia, the group also owns Raiffeisen Leasing and Raiffeisen Capital.
How much is the RBI's revenue in russia? russia is an important market for this Austrian group, as evidenced by its performance. russian Raiffeisen Bank ended 2022 with the following results (hereinafter referred to as RBI's IFRS reporting data)
- assets increased by 43.4% to €27 billion;
- retail deposits increased by 36.1% to €20 billion;
- net interest income doubled to €1.5 billion;
- net fee and commission income increased fivefold to €2 billion;
- the bank's net profit increased 4.3 times year-on-year to €2 billion.
If we compare the financial result of the russian bank with the result of all the entities that are part of Raiffeisen Bank International (and their net profit in 2022 was about EUR 3.8 billion), it turns out that the group received more than 50% of its total profit in russia.
Furthermore, Raiffeisen's russian division has the highest return on equity. In 2022, it exceeded 76%. In Ukraine, for comparison, Raiffeisen Bank's return on equity was about 15.5%. In other countries where the group is present, this figure ranges from 6% to 27%.
How are Ukraine and the European regulator pushing the RBI to withdraw from the rf? Back in March 2022, Raiffeisen Bank International announced plans to exit the russian market. The group published an official statement with reference to RBI CEO Johan Strobl. He informed that the unprecedented situation (the war – Mind) makes them think about their position towards russia. "Therefore, we are evaluating all strategic options for the future in russia, up to a carefully considered exit from Raiffeisenbank," Johan Strobl said.
However, in 2022, no exit from the russian market took place. And with the onset of 2023, the pressure on the RBI increased dramatically.
In January, Ukraine's National Bank called on Raiffeisen and several other international financial groups to cease their operations in russia and belarus, where RBI owns Priorbank through its subsidiary Raiffeisen Landesbanken Holding AG.
In February, the European Central Bank voiced its position and warned European bankers who continue to stay in russia that the window of opportunity has almost closed. In doing so, the ECB hinted that they should hurry up and sell their russian businesses as soon as possible.
And in March, Reuters publishedan article stating that not only the ECB but also the US is making unambiguous hints to the RBI management (the agency cited a senior Washington official) about the group's presence in russia.
Ukraine did not maintain aloofness either. On 28 January, the National Security and Defence Council imposed sanctions on the leasing subsidiary of Raiffeisenbank. And on 22 February, the NSDC strengthened the sanctions and imposed them against all russian banks and financial institutions in russia (insurance, investment companies, etc.).
In addition, the list of those subject to personal sanctions on the NACP website includes the aforementioned RBI Governor Johann Strobl, who is also the chairman of the supervisory board of the russian Raiffeisenbank, and a member of the bank's supervisory board Andreas Gschwenter.
What are the main arguments of the NACP against the RBI? Returning to the NACP decision to classify Raiffeisen Bank International as a war sponsor, the committee's main arguments are as follows:
- Raiffeisen is on the list of systemically important russian banks, which indicates its importance for the russian economy;
- the bank is still one of the key financial channels for russian businesses to conduct transactions in dollars and euros;
- the bank receives huge revenues that are used to finance the budget of the aggressor country. According to the NACP, in 2022, Raiffeisen Bank paid almost €560 million in taxes in russia;
- Raiffeisen officially recognises the so-called "Donetsk" and "Lugansk" "people's republics" through its russian representative office and provides favourable lending terms to the russian military (loan repayment holidays and soft loans);
The National Bank of Ukraine states that there has been no progress in the bank's exit from the russian market.
What could be the scenario of RBI's withdrawal from russia? Following the intensification of the campaign against RBI, the group's representatives reiterated that they continue to study the issue of exiting the russian market. In a statement, Raiffeisen Bank International said that due to various restrictive measures, this is not an easy process.
Meanwhile, the group says it has almost completely stopped lending in russia. In particular, in 2022, its loan portfolio decreased by more than 22%. RBI also recalled that it provides substantial humanitarian support to Ukraine, which is not limited to direct financial assistance of €20 million, but includes comprehensive assistance to Ukrainian refugees.
As for the withdrawal of Raiffeisen Bank International from russia, the Austrian outlet Falter reported in March that the exchange of assets of the russian Raiffeisen Bank for the assets of the sberbank in Austria could be an option. To be more precise, this refers to the assets of sberbank Europe's subsidiary, which were frozen as a result of EU sanctions.
Thus, the RBI will be able to leave russia unscathed, while sberbank will essentially unlock its assets and additionally acquire the belarusian Priorbank.
How do the NACP's decisions affect Ukrainian banks? Mind asked Raiffeisen Bank to comment on the situation around the RBI and its possible impact on the Ukrainian bank. The press service of the financial institution said that all this "...in no way concerns the Ukrainian Raiffeisen Bank as a standalone legal entity and does not affect its operations."
In response to our outlet's request to clarify its official position on Raiffeisen Bank International, the National Bank cited its statement to Interfax-Ukraine, in which the NBU said that the NACP's decision to include Raiffeisen Bank International in the list of international sponsors of war will not have a direct impact on the operations of the Ukrainian Raiffeisen Bank.
With that said, the regulator expressed concern over a possible scheme to exchange Raiffeisen Bank's assets for those of Sberbank Europe. The NBU believes that if the RBI goes ahead with such a deal, it will save a russian bank under sanctions and deprive Ukraine of the opportunity to receive reparations.
What are the possible consequences for the RBI? Mind talked to a number of bank market players. They agreed that Raiffeisen Bank International is in no hurry to leave russia precisely because the russian market brings the group the lion's share of its profits. And it is almost impossible to replace this market should it be lost.
Yet, the media outlet's interlocutors expressed surprise that RBI is bearing the brunt. While such groups as Intesa Sanpaolo, OTP Group, ING Bank, Credit Agricole are also present in russia. Intesa Sanpaolo owns Pravex Bank in Ukraine, OTP Group owns OTP Bank, ING Bank owns ING Bank Ukraine, and Credit Agricole owns Credit Agricole Bank.
In the meantime, the Austrian authorities are attempting to distance themselves from the RBI case. In particular, Austrian Foreign Minister Alexander Schallenberg said in an interview with Der Standard newspaper that the Raiffeisen Bank International group should ultimately decide on its own how to proceed. However, he does not rule out that the joint pressure by the ECB and the US authorities will force RBI to completely abandon its presence in russia.
However, it could come to an extreme scenario, in which Raiffeisenbank would be banned from processing dollar transactions. This would not only destabilise the bank's operations, but would also have a serious impact on the entire group. Amidst the banking crisis that has unfolded in the US and has already spread to the EU, this outcome does not seem too far-fetched.
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