Austrian Bank Raiffeisen’s Profits Soar in Russia During War: The Controversy Continues

2023-09-05 17:14:15

During the war, business continued. This is what is reproached, with increasing insistence, to Raiffeisen Bank International (RBI), the main Austrian bank, very present in Russia.

The value of its assets in this country thus increased by 40% between January 2022 and March 2023 to reach 29 billion dollars, noted the British daily Financial Times in an article published on Sunday, September 3.

Rising Russian profits

In addition, the profits that the subsidiary of Raiffeisen Bank in Russia recorded rose sharply – by almost 10% – during the first six months of 2023, specifies the Financial Times. “Why does this Austrian bank continue to earn so much money in Russia?” la Süddeutsche Zeitung.

International sanctions and pressure on major Western groups present in Russia have pushed a number of these players to withdraw since the start of the major Russian offensive in Ukraine in February 2022. French banks, such as Société Générale or BNP Paribas , have thus offloaded their Russian assets, even if it means suffering billions in losses on this occasion, recalls the magazine Le Point.

The Raiffeisen Bank, for its part, increased the number of its employees in Russia, which now reaches almost 10,000 people against 9,000 before the conflict, highlights The Banker website. What push the Ukrainian authorities to place several RBI officials on a list of “persons to be sanctioned”, including its CEO, Johann Strobl.

The presence in Russia of the RBI is also making waves in the small, cozy circle of bankers. On the occasion of a conference on international finance which took place in Tyrol, Johann Strobl was sharply challenged by the public on the Russian affairs of the Austrian bank, told the Süddeutsche Zeitung.

It must be said that the leader of the RBI announced in March that he would somehow leave Russia in September. Then, during the summer, bank officials admitted that we would have to wait a little longer, without giving more details on a possible new deadline, notes the Reuters news agency.

For its part, the Raiffeisen Bank is sharpening its arguments to counter criticism. Contacted by France 24, she points out that between the second half of 2022 and that of 2023, the value of her Russian assets has fallen. She adds that the number of loans to Russian customers has almost been halved. The divestment process is therefore well and truly underway.

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Historical presence in Russia

Above all, the Austrian bank deplores being constantly cited as an example of poor Western students still present in Russia. It is true that other companies are in the same situation, and there is even a list of Western companies still active in Russia, regularly updated by Yale University. “We found that there were a lot of companies that promised to leave, but that in fact, it was not always followed by effect. Or else, they were not real withdrawals, but rather, for example, a freeze on new investment,” said Benjamin Hilgenstock, a specialist in international sanctions against Russia at the Kyiv School of Economics.

Nevertheless, the RBI stands out. Because there are “few Western banks which had a substantial presence in Russia before the war and the Raiffeisen Bank was clearly the most important”, underlines Kirill Shakhnov, a specialist in international finance at the University of Surrey who has writes about the impact of sanctions against Russia. The other two main Western banks to have bet big on Russia are the Italian groups UniCredit and Hungarian OTB Bank… both also still present in Russia.

The local subsidiary of the Austrian bank is even one of the ten largest banks in Russia and “is considered a systemic establishment for finance in Russia”, adds finance specialist Kirill Shakhnov. This is no small achievement because “the Russian banking sector is very concentrated and leaves little room for foreign players,” adds Kim Kaivanto, an economist at Lancaster University.

In fact, the RBI is a bit like the first to arrive and the last to want to leave. It began investing in Russia in 1996 and has since continued to spend lavishly to gain market share there, summarizes the Financial Times. Result of the races: “Operations in Russia today represent nearly 60% of the profits made by the bank at the global level”, underlines Kirill Shakhnov

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The bank of international transactions between Russia and the world?

Difficult to cut yourself off from such a market. And the war in Ukraine seems to have further improved the bank’s business. First, “because it was able to recover customers from other Western banks who quickly left,” said Tyler Kustra, specialist in international economic sanctions at the University of Nottingham.

Then, “like all Russian subsidiaries of Western groups, the RBI is not subject to the sanctions regime. It still has access to international banking networks where it was able to borrow money at very low rates last year to then grant lucrative loans in Russia where the rates had exploded because of the war”, explains Kirill Shakhnov.

Finally, the war seems to have made the RBI a key player in what remains of international transactions between Russia and the West. “Since most of the Russian banks are on the sanctions lists, it is necessary to find financial intermediaries to manage the payment of the purchases of Russian natural gas by the European countries, for example. And apart from the Raiffeisen Bank, there is no there are not many people”, details Kirill Shakhnov.

The Financial Times thus assured in March that the RBI now managed nearly 50% of Russian international transactions. Which would make it an essential cog in the wheel of bringing money into Russia and, therefore, of financing the Russian war effort.

An estimate vigorously disputed by the Raiffeisen Bank which maintains with France 24 that the bank “certainly does not manage up to 50% of the financial transactions between Russia and the rest of the world”. She points out, moreover, that this share has only dropped since the publication of the Financial Times article.

The price to pay

Being constantly put in the hot seat and having to defend themselves “represents the price to pay for a company that decides to do business in authoritarian countries”, underlines Benjamin Hilgenstock. There may be a lot of snakes to swallow for who “eyes the market shares of those who leave”, assures Alexander Mihailov, economist at the University of Reading having written about the Russian monetary sector.

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Thus, the RBI has found in very troubled media waters for granting repayment terms to its indebted Russian customers who had to fight on the front lines. The bank may have replied that it was a legal obligation, “no one is forcing him to stay”, notes Benjamin Hilgenstock.

But leaving is not easy either. “The RBI gets stuck”, assures the Austrian daily Der Standard. Moscow has, in fact, enacted measures during the year 2022 to “make as painful as possible any withdrawal from Russia by a company”, underlines the economist Kim Kaivanto. The agreement of the Russian authorities, including President Vladimir Putin, must be obtained in the event of the sale of the assets. In other words, to get the Russian green light, you have to accept the Kremlin’s conditions. Candidates for departure must also pay an additional fee. “Russia hopes that these measures will encourage Western companies to try to pressure their governments to ease the sanctions that weigh on Russia”, continues Kim Kaivanto.

In the case of the Raiffeisen Bank, packing up and giving up on its Russian activities “would more or less amount to financial suicide”, summarizes Kirill Shakhnov. This is why the bank’s officials seem determined to postpone this promised withdrawal indefinitely. “They hope that the war will soon be over, which will allow them to stay,” notes Reuters.

In the meantime, Austrian bank officials have their sights set on… Washington – with the United States beginning to look into the RBI’s Russian activities in February. And if the Americans believe that the bank is violating the sanctions regime against Russia, they could prohibit the bank from making transactions in dollars… Enough to sign the death warrant of this bank.

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