Raiffeisen Bank International AG has no plans to exit Russia despite Western governments hitting the country with a raft of sanctions in response to its invasion of Ukraine.
Media reports March 1 suggested that the Austrian lender is considering exiting Russia, where it owns the 10th largest bank by total assets. The bank's Russian business accounted for €2.4 billion of equity, €11.6 billion of loans and more than one-third of the group's pretax profit in 2021, with a return on equity after tax of 24.9%.
"With some news today that we intend to walk away [from Russia], it's very important that all of you understand we are not walking away," CEO and Chairperson Johann Strobl told analysts and investors on a March 1 call to clarify the bank's position in both the Russian and Ukrainian markets.
RBI is one of the most exposed European lenders to Russia, and its shares have fallen more than 50% in the year-to-date. France's Société Générale SA and Hungary's OTP Bank Nyrt. also have significant retail banking operations in the country.
No final assessment
An initial assessment of the impact of current sanctions against Russia shows that about 1% of Raiffeisen's total group exposure is directly affected, said Hannes Mosenbacher, chief risk officer. This constitutes €354 million of exposure to financial institutions and €119 million to sanctioned companies, according to a company presentation.
No final assessment of the impact on Raiffeisen can be given yet, as sanctions are being extended "almost daily," the presentation said. "One does not know where the sanctions will lead to and what it would mean in the mid- to long-term for a bank like ours," Strobl said.
The composition of Raiffeisen's Russian loan book provides the bank with a degree of insulation, as approximately 80% of its loans in the country are based in rubles, said Mosenbacher. Borrowers in Russia repaying loans denominated in foreign currencies face a higher likelihood of default following a plunge in the value of the country's currency, which has dropped by more than 35% against the euro and by about 32% against the dollar since Jan. 1.
Raiffeisen has also hedged against a depreciation in the ruble, protecting it from damaging drops in the value of the currency.
Strobl was less clear about Raiffeisen's long-term future in Russia. If the group ultimately decided to exit the market, the size of its losses on its €2.4 billion investment would depend on how much a buyer would be willing to pay for the bank, said Strobl.
"The question is, will we get anything for a very good bank, which we'll leave behind?" Strobl said. "Whatever [we receive] between €1 billion and €2.4 billion, the difference is the loss."
Waiting for the dust to settle
Raiffeisen has postponed payment of its 2021 full-year dividend due to the uncertainty generated by the conflict. The European Central Bank had no influence on the bank's decision to postpone its dividend payment, said Mosenbacher.
"Hopefully, [the situation in Ukraine] does settle," said Strobl. "We then will understand what the impact on our [capitalization] is and then, in a much clearer environment, we can pay this dividend."
In Ukraine, where Raiffeisen is the fifth-largest lender by loans to customers and has 390 branches, the bank has had to close some sites and adjust opening hours at others. The majority of its branches in the country remain open, Strobl said.
Raiffeisen has frozen new lending in both Ukraine and Russia in response to the crisis, Strobl said. "It's more to keep the operations [going]. It's not about new lending," he said.
'Worst-case scenario'
The Vienna-based lender does not expect its Russian business to suffer losses despite the severity of Western sanctions, which are anticipated to push the country's economy into recession.
"In a worst-case scenario, the bank in Russia still could make a profit," Strobl said. "Given the macro scenarios one might use, you won't see it in the negative."
The exclusion of several of Russia's largest lenders from the Swift global banking messaging system will be "painful" for those lenders targeted, Strobl said. Raiffeisen is not currently considering how it might benefit from its position as one of the lenders in the Russian market that is not excluded from Swift.
"This is not the time for business opportunities," said Strobl.
The Russian banking system should be able to overcome the exclusion of several of its largest lenders from Swift on a domestic basis, Strobl said. "Russia has built an [interbank messaging] system which, to my knowledge, is working," said Strobl. "So, within Russia, there is something available and internationally, it's more difficult."
