The 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 there are many permits from Russian authorities required for the sales and there is a new regime there, the Italian said a few weeks ago.

Markus Frühauf

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Archibald Preuschat

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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. This is because ECB supervision remains stubborn vis-à-vis the banks on the Russia issue. For the ECB's highest-ranking banking supervisor, it is important that banks closely monitor their business in Russia and wind it down as quickly as possible.

Looking at the figures from the Bank for International Settlements (BIS), it is striking that French banks reduced their lending volume to Russian customers the fastest between the end of 2021 and September 2022 – from $27.1 billion to $8.6 billion. This is due to Société Générale, which sold its business there last year. And ECB supervisors continue to exert pressure in talks with supervised institutions when it comes to Russia.

Retreat takes time

Now the Austrian Raiffeisenbank must also consider a sale or spin-off of its Russian entity. It won't be easy, but as the largest foreign bank, the risks of becoming part of the Russian war machine are increasing. For example, Raiffeisen has come under scrutiny by the American authorities because the Russian government has obliged the banks to deferre loans to soldiers. According to data from the Central Bank of Russia, from mid-September to the end of 2022, loans to military personnel in the amount of 800 million euros were deferred. In Ukraine, the banks involved, including Raiffeisen, have been criticized as "war helpers".

The pressure of ECB supervision is also being felt by the two major German banks, Deutsche Bank and Commerzbank. They are still active in Russia, but both are refraining from new business – in strict compliance with the applicable sanctions measures, as emphasized by both houses. For example, Deutsche Bank continues to serve major international clients who have not yet withdrawn from Russia, for example in trade finance or payment transactions. According to the annual report, net credit management fell by more than a third over the past year and amounted to 31 million euros as of December 379. "Deutsche Bank will continue its course of further reducing its portfolio vis-à-vis Russia," the spokesperson said.

The same applies to Deutsche Bank's Russian IT location in St. Petersburg, where 500 people are currently employed. According to a spokesman, activities at the Russian technology center are to be reduced. For this reason, the options available to employees there have been expanded. In addition to relocating or continuing to work locally, Deutsche Bank also offers to terminate the employment relationship by mutual agreement.

"We are also ensuring, within the framework of local laws, that the impact on business operations remains minimal," the spokesperson said. 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, also states that it will no longer conduct new business with its correspondent banks that is relevant to obligations. However, existing business with German and international customers will be continued. At the annual press conference on February 16, Bettina Orlopp, who is responsible for finance on the Executive Board, reported the volume of business in Russia at the end of 2022 at 744 million euros. 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, Eurasija, still holds about €800 million worth of ruble-denominated deposits with the Central Bank of Russia.

"We have to understand that the environment there is not easy and it can be difficult for banks to pull out from one day to the next," ECB chief supervisor Enria said in mid-March. This would also be taken into account in the discussions with the banks.