European Central Bank urges banks to speed up departure from Russia to avoid US sanctions – Bloomberg

The European Central Bank (ECB) is urging banks to leave the Russian market as soon as possible, fearing US sanctions.

Source: Bloomberg

Details: It is noted that two years after Russia's full-scale invasion of Ukraine, large European lenders continue to operate powerful, increasingly profitable units in Russia despite public pledges to close them.

"The combined head count of the five European Union banks with the largest Russia operations has fallen by just 3% since the invasion, and earnings have roughly tripled, thanks to the fat interest rates," Bloomberg wrote.

Accordingly, this slow pace has prompted the ECB to exert pressure on laggards to galvanise their departure.

Bloomberg noted that one reason for the ECB's increased pressure is that continuing to have a presence in Russia risks exposing banks to US sanctions and heavy fines.

"The watchdog has asked all banks with sizable businesses in Russia 'to speed up their de-risking efforts by setting a clear road map for downsizing and exiting'," Claudia Buch, the ECB's top supervisory official, told eurozone finance ministers.

For instance, Raiffeisen claims it is working to ensure compliance with sanctions and that it has "significantly reduced its activities in Russia" since 2022. The bank's loan portfolio has decreased by nearly 60%, amounting to approximately €5.8 billion. However, the number of employees has increased by 7%, reaching almost 10,000.

Hungary's OTP Bank is one of the few EU lenders to withdraw money from the country. The company says it is fully compliant with sanctions and wants to leave the market, but Russian regulators are making it difficult to sell the unit at a fair price.

Italy's UniCredit SpA operates in Russia via a subsidiary with about 3,100 employees and over 50 branches. The Milan-based bank says it has reserved over €800 million against defaults in Russia since 2022 and has reduced its loan portfolio by two-thirds.

Background:

Andrea Orcel, CEO of Italian UniCredit Bank, said that likely all banks that continue to operate in Russia have received letters from the ECB calling for them to cut their business in Russia.

Johann Strobl, CEO of Raiffeisen Bank International (RBI), said that in the third quarter of 2024, the banking group would begin to comply with the European Central Bank's (ECB) order to significantly reduce its business in Russia.

The largest Western banks that remain in Russia paid more than €800 million in taxes to the Kremlin last year, four times more than before the full-scale invasion, despite promises to minimise their Russian exposure.

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