Dhe chief supervisor of the European Central Bank (ECB), Andrea Enria, shows understanding if European banks are currently unable to reduce their activities in Russia quite as quickly as many politicians would like. Because a lot of approvals from the Russian authorities are required for the sales and there is a new regime there, the Italian said a few weeks ago.
His understanding is certainly not related to the fact that the major Italian bank Unicredit is the largest foreign bank in Russia alongside the Austrian Raiffeisenbank. Because the ECB supervision remains obstinate towards the banks on the Russia question. For the ECB’s senior banking supervisor, it is important that banks monitor their business in Russia closely and wind it down as quickly as possible.
Looking at figures from the Bank for International Settlements (BIS), it is noticeable that French banks reduced their lending to Russian customers the fastest between the end of 2021 and September 2022 – from $27.1 billion to $8.6 billion. That’s thanks to Société Générale, which sold its business there last year. And the ECB’s supervisors continue to apply pressure in talks with the supervised institutions when it comes to Russia.
retreat takes time
Now the Austrian Raiffeisen bank must also consider selling or splitting off its Russian unit. It won’t be easy, but as the largest foreign bank, the risks of becoming part of the Russian war machine are increasing. Raiffeisen has come under the scrutiny of the American authorities because the Russian government has obliged the banks to defer loans to soldiers. According to data from the Russian central bank, loans to military personnel worth 800 million euros were deferred from mid-September to the end of 2022. In the Ukraine, the banks involved, including Raiffeisen, were criticized as “helpers in the war”.
The two major German banks, Deutsche Bank and Commerzbank, are also feeling the pressure from ECB supervision. They are still active in Russia, but both are refraining from new business – in strict compliance with the applicable sanctions, as emphasized by both houses. Deutsche Bank continues to support major international customers who have not yet withdrawn from Russia, for example in trade financing or payment transactions. According to the annual report, net credit management fell by more than a third over the course of the past year and amounted to EUR 379 million as of December 31. “Deutsche Bank will continue on course to further reduce its portfolio towards Russia,” said the spokesman.
The same applies to Deutsche Bank’s Russian IT location in Saint Petersburg, which currently employs 500 people. According to a spokesman, activities in the Russian technology center are to be reduced. That is why the options available to employees there have been expanded. In addition to a relocation or continued employment on site, Deutsche Bank also offers to terminate the employment relationship by mutual agreement.
“We are also making sure, within the framework of local laws, that the impact on business operations remains minimal,” said the spokesman. However, he expressly did not comment on the future of the IT location, which should not have any access to security-relevant source codes.
Commerzbank, which continues to employ 130 people in Russia, states that it no longer conducts any new business relevant to commitments with its correspondent banks. However, existing business with German and international customers will continue. At the balance sheet press conference on February 16, Bettina Orlopp, who is responsible for finance on the Management Board, stated that the volume of business in Russia at the end of 2022 was EUR 744 million. Since the Russian invasion of Ukraine, which began on February 24, 2022, Commerzbank has reduced its loans to Russian customers by 60 percent. Its subsidiary Eurasiya still holds around 800 million euros in ruble-denominated deposits with the Russian central bank.
“We have to understand that the environment there is not easy and it can be difficult for banks to withdraw from one day to the next,” said Enria, chief ECB supervisor, in mid-March. This would also be taken into account in the discussions with the banks.