Raiffeisen Bank International AG sees the recently imposed U.S. sanctions against Russia as by far the biggest challenge to its business in the country, according to CEO Johann Strobl.
"The way the U.S. sanctions have been established creates quite a lot of uncertainty," he said during a first-quarter earnings call on May 15. "We have seen that overnight that can have a very big impact on single corporate customers."
The Austrian group reported an 81.4% year-over-year jump in first-quarter net profit to €399 million and a similar rise in consolidated return on equity, which surged to 16.6% from 9.6%. RBI's share price stood at €29.97 at 4.41 p.m. in Vienna on May 15, up 4.13% on the prior-day close.
At €8 million, the Russian business booked the greatest rise in first-quarter net interest income within the Eastern European operations of RBI, where total net interest income rose €3 million year over year to €247 million. The net interest margin in Russia reached 5.95% in the first quarter, up from 5.43% a year earlier.
Currency volatility
Nevertheless, like RBI's other Eastern European units, the Russian business was hit by high currency volatility. The depreciation of the Russian ruble led to a €14 million decline in trading income in the region and had a limited impact on RBI's capital position.
For each ruble of depreciation against the euro, the group's common equity Tier 1 ratio is affected by one basis point, the CEO told analysts. Most of the CET1 ratio impact was felt early in the second quarter rather than the first, and the ruble has meanwhile stabilized, supported by higher oil prices, he said.
A weaker ruble does not pose any direct risks to RBI, as most of the group's corporate clients know how to deal with the depreciation and are hedged against it to a large extent, Strobl said. The main effects will be the capital translation risk and the fact that income from local operations will come in a little lower in euro.
"I would say the real challenge is the political risks [coming] via the sanctions," he said, adding that even if the oil price drops, the Russian economy is strong enough to handle that.
Committed to Russia
Despite the sanction-related risks, RBI remains committed to its Russian business and has no intention of diluting its positions there, Strobl said, adding: "Since 2014, we have substantially reduced the portfolio in Russia in terms of total assets."
The group's current risk-weighted assets exposure to Russia is around 8%, which is "a reasonable level" that RBI is fine with, according to the CEO.
The business mix is also quite diversified, and the group does not plan any changes at this point. The overall credit quality of the loan book in Russia is also good, Strobl said. Furthermore, RBI cannot predict which of its positions might be affected by potential additional sanctions, he added.
RBI has stated that its total exposure to sanctioned Russian companies currently stands at some 0.1% of its total assets, which were around €140 billion as of March 31.
In April, the United States imposed its latest economic sanctions against Russia, targeting some of the biggest companies in the country. The move was largely related to the alleged meddling of Russia in the 2016 U.S. presidential election.
As of May 14, US$1 was equivalent to 61.78 Russian rubles.
