February 14, 2023
By John O'Donnell and Simon Jessop
A Russian police officer stands in front of a branch of the Raiffeisen Bank in Moscow, Russia, February 27, 2016. REUTERS/Maxim Shemetov/File Photo
BERLIN/LONDON, Feb 13 (Reuters) - A Russian scheme to grant loan
payment holidays to troops fighting in Ukraine, and for banks to write off the
entire debt if they are killed or maimed, has added to growing pressure for the
remaining overseas lenders in Russia to leave.
Almost a year since Moscow launched what it calls a
"special military operation" in Ukraine, a handful of European banks,
including Austria's Raiffeisen Bank International (RBIV.VI) and
Italy's UniCredit (CRDI.MI), are
still making money in Russia.
The loan relief scheme has not only triggered criticism from
Ukraine's central bank, which said it had appealed to Raiffeisen and other
banks to stop doing business in Russia, but also from investors concerned about
any reputational impact.
Raiffeisen and UniCredit are both deeply embedded in the Russian
financial system and are the only foreign banks on the central bank's list of
13 "systemically important credit institutions", underscoring their
importance to Russia's economy, which is grappling with sweeping Western
sanctions.
Their role in supporting the Russian economy at a critical time
for President Vladimir Putin has prompted some investors to go public with
their misgivings.
"Companies should be very careful," said Kiran Aziz,
of Norwegian pension fund KLP, cautioning of a major risk that the banks could
be used to "in other ways finance the war". KLP funds hold shares in
both Raiffeisen and UniCredit.
At the time the payment holiday law was going through parliament
in September, Vyacheslav Volodin, the influential speaker of the lower house,
made clear its importance to Russia.
"Soldiers and officers ensure the security of our country
and we must be sure that they will be taken care of," he said.
Eric Christian Pederson of Nordea Asset Management, which has
more than 300 billion euros ($320 billion) under management, said he too was
concerned about Raiffeisen and UniCredit's Russian presence and had raised this
with them.
The requirement that the banks grant payment holidays to
soldiers "illustrates the dangers of operating in jurisdictions where
companies can … be forced into actions that go directly against their corporate
values," he added.
"We feel that it is right for companies to withdraw from
Russia, given its unprovoked attack on Ukraine," said Pederson. Refinitiv
data shows Nordea owns shares in UniCredit.
Banks restructured a total of 167,600 loans for military
personnel or their family members, worth more than 800 million euros, between
Sept. 21 and the end of last year, Russian central bank data shows.
Raiffeisen said that only 0.2% of its Russian loans are affected
by the "government-imposed loan moratorium", a sum it described as
"negligible". The bank has a total of almost 9 billion euros of loans
in Russia, where it has been for more than 25 years, including to companies.
It made a net profit of roughly 3.8 billion euros last year,
thanks in large part to a 2 billion euro plus profit from its Russia business.
UniCredit, which entered the Russian market almost 20 years ago
when it acquired an Austrian bank, said that the rule was "mandatory under
the federal law … for all banks", declining to say how many of its loans
had been forgiven.
The Italian bank added that its business in Russia was focused
on companies rather than individuals. Of UniCredit's more than 20 billion euro
total revenue last year, Russia accounted for more than 1 billion euros.
But despite an initial sharp fall, UniCredit's shares are now
significantly higher than before Russia moved its troops into Ukraine on Feb.
24 last year, while Raiffeisen's, with a more limited free float, have not
recovered.
"Any profiteering on the ongoing war is not acceptable or
aligned with our view of responsible investments," said a spokesperson for
Swedbank Robur, one of Scandinavia's top investors, adding that reputational
risk was a worry.
Swedbank Robur said it has stakes in both banks, but did not
disclose figures.
Larger institutional investors, including France's Amundi and
Norway's sovereign wealth fund, which advocates responsible investing, declined
to comment when asked for their views.
WINDOW
CLOSING?
Some foreign banks have made relatively quick exits.
France's Societe Generale (SOGN.PA) severed
its Russia ties in May by selling Rosbank (ROSB.MM) to
businessman Vladimir Potanin's Interros Group.
But the continued presence of two of Europe's biggest banks is
attracting the attention of regulators at the European Central Bank (ECB), one
person familiar with the matter said.
Andrea Enria, the ECB's chief supervisor, said the window to
quit was "closing a bit" because Russian authorities were taking a
more "hostile" approach. But he also voiced support for any bank
wanting to reduce their business there or leave.
Raiffeisen and UniCredit confirmed they were in discussions
about Russia with the ECB.
UniCredit said it kept the ECB "fully and regularly up to
date on our strategy of orderly de-risking our exposure to Russia".
But with money still to be made, Raiffeisen saw profit from its
business in Russia more than triple last year.
Meanwhile, Russian savers lodged more than 20 billion euros with
the bank, which offers a place to deposit funds with fewer sanctions risks.
This means there is no great impetus for banks to leave Russia,
despite regulatory pressure.
And in Austria, which has close historical and economic ties to
eastern Europe and Russia, politicians are largely silent on Raiffeisen's
continuing Russian presence, which in recent months prompted protests outside
its headquarters.
Johann Strobl, Raiffeisen's CEO, has said he is examining
options for the Russian business, although points out that any move is
complicated, having earlier said that the bank is not "a sausage stand"
that could be closed overnight.
For some the question is more about morality than money.
Heinrich Schaller, head of RBI's third largest shareholder
Raiffeisenlandesbank Oberoesterreich and deputy chairman of Raiffeisen, is
among those to have aired doubts about staying.
"Of course it is a question of morals," he said
recently. "No doubt about it."
Whatever shareholders may say, a decree by Putin is likely to
make getting out of Russia difficult. It banned investors from so-called
unfriendly countries from selling shares in banks, unless the Russian President
grants an exemption.
($1 = 0.9376 euros)
Additional reporting by Alexandra Schwarz-Goerlich in Vienna and
Tom Sims in Frankfurt; Writing by John O'Donnell; Editing by Alexander Smith
https://www.reuters.com/world/europe/loans-russian-soldiers-fuel-calls-european-banks-quit-2023-02-13/
February
15, 2023
Analysis:
Washington pushes for harsher action against banks with Russia ties
Workers
remove debris of a destroyed building, purported to be a vocational college
used as temporary accommodation for Russian soldiers, 63 of whom were killed in
a Ukrainian missile strike, as stated the previous day by Russia's Defence
Ministry, in the course of Russia-Ukraine conflict in Makiivka (Makeyevka),
Russian-controlled Ukraine, January 3, 2023. REUTERS/Alexander Ermochenko
BERLIN, Feb 14 (Reuters) - The United States could sanction more
banks with links to Russia and will step up enforcement against any dodging
existing rules, a senior U.S. official told Reuters, as Western powers seek to
reinvigorate efforts to isolate Moscow.
The comments come as Western diplomats seek to agree a new raft of
sanctions for the anniversary of Russia's invasion of Ukraine on
Feb. 24.
"We have immobilised about 80% of the assets in the Russian
banking sector," James O'Brien, head of the U.S. State Department's Office
of Sanctions Coordination, told Reuters.
"We are looking at additional banks and financial
institutions to see how Russia deals with the outside world. It is very
possible that there will be more action."
The West blocked several Russian banks' access to the
international SWIFT payments system soon after Moscow invaded Ukraine in
February last year, with Sberbank (SBER.MM) and
VTB (VTBR.MM) forced to shutter operations across
much of Europe
Western governments also froze around $300 billion of the
Russian central bank's reserves.
But not all ties have been cut. Some European banks, including
UniCredit (CRDI.MI) and Raiffeisen Bank International (RBIV.VI), have
large businesses there and must follow local rules to grant
payment holidays to soldiers.
And Gazprombank, the financial arm of Russian gas exporter
Gazprom (GAZP.MM), has escaped harsh sanctions partly because
it handles payments for energy.
It is unclear how ambitious the new restrictions will be, given
the desire among some European countries, including Hungary and, to a lesser
extent, Germany, to temper further curbs to soften the economic impact,
officials from European Union countries told Reuters.
The United States and European Union have sought to present a
united front on sanctions, although their penalties differ, in part because
Europe has closer economic ties to Russia.
The
European Commission has proposed EU countries should cut four more
Russian banks, including the private Alfa-Bank, the online bank Tinkoff and the
commercial lender Rosbank (ROSB.MM) from
global messaging system SWIFT, two EU diplomatic sources said on condition of
anonymity.
Ukraine has called for more sanctions, including targeting
Russia's nuclear sector,
but is likely to be disappointed.
Two of the European officials, speaking on condition of
anonymity, said that additional financial sanctions were possible but efforts
to target Russia's nuclear sector, also advocated by Poland, were unlikely to
succeed.
Hungary has already said it would veto such a move.
One of the people said any attempt to target Gazprombank would
meet with resistance in Europe because of its importance in processing payments
for Russian gas, still used by Hungary and other EU states.
ENFORCEMENT
O'Brien said that the United States would step up enforcement,
something the EU also hopes to improve.
"We are now looking at how sanctions, including financial
sanctions, can be most effective," he said.
"We will see additional measures to increase the intensity
of enforcement actions," he said, adding that although the sanctions
allowed global trade in Russian oil and other products, the United States would
check on banks and their clients.
"We are always looking to see which companies and parties
could benefit from financial transactions linked to Russia," he said.
The United States has the clout to make sanctions bite because
the U.S. dollar is central to global trade, while the EU depends on a patchwork
of national authorities, some with scant resources.
The U.S. Treasury has
over the last year sanctioned more than 100 individuals and entities seeking to
circumvent Russia curbs and has charged prominent Russian oligarchs for
violations.
Germany, by contrast, has struggled to enforce sanctions on
oligarchs due to legal restraints and reliance on multiple authorities,
according to people familiar with the matter.
"The focus this year has to be to make sure that we stop
sanction evasion," said Franziska Brantner, state secretary in Germany's
economy ministry. "And that's what part of the tenth sanction package is
looking at."
Russia invaded Ukraine in February last year, in what it calls a
"special military operation" to "denazify" the country, but
which Western leaders say was nothing more than a land grab.
The eastern
Ukrainian city of Bakhmut has endured heavy artillery fire this
week as the head of military alliance NATO backed
reports from local officials that a major new Russian offensive
had begun, days before the first anniversary of the invasion.
"Russia is actively seeking ways to circumvent western
sanctions," said EU trade commissioner Valdis Dombrovskis recently, adding
that new EU measures would seek to "limit the circumvention of the
sanctions".
"There is a willingness to go further across the European
Union," Irish finance minister Michael McGrath told reporters this week.
"We are all appalled about what we are witnessing in terms of continued
Russian aggression in Ukraine."
Analysts say there is plenty of scope to pile more sanctions on
Russia.
"While the majority of important Russian banks are
sanctioned, there is a lot outside that perimeter that you could go
after," said Nicolas Veron, of Washington think tank the Peterson
Institute for International Economics.
"Nonetheless, Russia has proven it can adapt."
Guntram Wolff, CEO of Berlin think tank the German Council on
Foreign Relations, said Russia could use dollar bank accounts to equip its
army: "Tighter financial sanctions would further undermine Russia's
military."
Additional reporting by Gabriela Baczynska in Brussels and
Daphne Psaledakis in Washington; writing by John O'Donnell; editing by Jane
Merriman
https://www.reuters.com/world/us/washington-pushes-harsher-action-against-banks-with-russia-ties-2023-02-14/
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