Partial sale becomes more likely: Russian operations secure profits …

In the first half of this year, nearly half of the group’s profits came from Russia.

Raiffeisenbank International (RBI), the second largest bank in the country, is under enormous pressure. On the one hand, analysts and investors used the presentation of the half-year results to raise questions about the withdrawal from Russia. On the other hand, from an official point of view: international regulators – especially American ones – have been pressuring the bank to leave Russia for months. Despite this, the Russian business remains profitable for the bank. In the first half of 2024, its revenues amounted to 705 million euros, which accounted for about half of the group’s profit after tax of 1.44 billion euros. However, the RBI does not have access to this money due to sanctions against Russia.

Russia’s revenues have not decreased since the start of the war. Net interest income almost doubled between fiscal years 2021 and 2023, from 744 million euros to 1.4 billion euros. Net commission income increased even more during the period, from 420 million euros to 1.15 billion euros. In the first half of 2024, net interest and commission income amounted to 745 million euros and 428 million euros, respectively.

The bank is working to reduce its exposure, but there are major obstacles. “Until we find a way out of Russia, business will continue to decline in all key areas,” Chief Executive Johann Strobl said at an analyst conference on Tuesday. The current reduction in Russian business is mainly reflected in loan volumes, which fell 17.5% to 5.8 billion euros. Customer loans will fall further by 55% by 2026.

According to a Reuters spokesperson, the bank does not have the right to refuse Russian retail customers. However, in order to keep the number of customers low, they use harsh conditions. While the Russian Central Bank pays 18% interest on deposits, customers of the Reserve Bank of India (RBI) receive zero interest and also have to pay high fees. The reason why customers still turn to Raiffeisenbank Russia is that, unlike many Russian banks, it is in the international financial communication network SWIFT and can make international transfers.

The ECB is pushing for an exit

The Reserve Bank of India is the largest Western bank in Russia, ahead of Italy’s UniCredit. It is a thorn in the side of the ECB, which has repeatedly warned the Reserve Bank of India and UniCredit to abandon their operations in the country. As a result, UniCredit will clarify with the court whether the ECB can demand the abandonment of its Russian operations.

According to Strobl, the most likely option for an exit is a partial sale: 60% of the Russian subsidiary would be sold, and 40% would remain with the Reserve Bank of India. The bank hopes to be able to share profits through dividends, but that remains uncertain. For the sale, the Reserve Bank of India must find an unsanctioned buyer and obtain approval from five institutions: the Russian Central Bank, the Austrian Financial Market Authority and the European Central Bank.

All these institutions have different perspectives, which complicates things, Strobl said. The most recent plan to reduce exposure to Russia by moving funds out of the country by buying a stake in Strabag, a company previously owned by Russian oligarch Oleg Deripaska, was thwarted in May due to excessive sanctions risks (The New Times reports). If the RBI leaves Russia, it will have to sell its subsidiaries at a price lower than their actual value. However, the RBI said this would not have a significant impact on capitalization. Even if it had to completely divest its Russian subsidiaries, which have an assumed zero book value, it could be buffered by capital reserves, the RBI explained. Excluding Russia, the bank’s common equity Tier 1 capital ratio was 14.7% at the end of the first half, well above regulatory requirements. Including Russia, it was 17.8%.

Also available in Belarus

In Belarus, the financial institution is continuing to work on the sale of its subsidiary Priorbank. Negotiations are ongoing with the UAE-based Soven 1 Holding Limited. The news was announced in February, but there has been silence on the long-gestating sale since then. When asked, Strobl explained that the bank had adjusted the conditions in favor of the buyer, but did not give more specific details. No time frame was specified either.

The news was well received on the stock market: RBI shares temporarily rose 7%.