The European Central Bank is reportedly ready to order Italy’s UniCredit to scale back its business in Russia. The largest foreign bank operating on the Russian market is currently a financial institution belonging to the Austrian Raiffeisen Bank International. The latter announced on Thursday that the ECB will ask it to reduce its loan placements and payments in Russia within a specified period of time.
The management of Raiffeisen was forced to explain a few days earlier, after the Financial Times investigated that the number of employees of its Russian subsidiary bank had increased since the start of the war against Ukraine. Moreover, they also advertise a lot of new jobs in Russia, and the growth plans of the various business branches are outlined in the text of the ads. The bank’s Austrian management defended itself by saying that the increase in the number of employees was primarily due to the expansion of the local subsidiary’s IT department, which was working on creating an independent IT architecture for the bank before a possible sale. And the text of the job advertisements has not been corrected by mistake since the introduction of sanctions against Russia.
After months of negotiations, the ECB now sends a legally binding instruction to UniCredit. This is the penultimate step before the ECB imposes sanctions, such as fines, according to Reuters sources.
Andrea Orcel, chief executive of UniCredit, said in February that the bank’s strategy for Russia was unchanged and that the Italian lender would continue to cut the business. However, as in the case of Raiffeisen, this can be quite painful because business in Russia is doing very well. The Russian unit of the Italian-based banking group reported a pre-tax profit of 890 million euros in 2023, which is about 7.7 percent of the group’s total profit. In comparison, in 2021, before the outbreak of the war, they achieved a pre-tax profit of 210 million euros.
Although the Russian subsidiary’s loan portfolio halved compared to the previous year and the number of employees fell by about 8 percent to about 3,150 people, revenues increased by 17 percent year-on-year in constant currency as bank fees rose.
The summary reminds us that in June, Andrea Enria, the head of the ECB’s supervisory department at the time, told the European Parliament that she repeatedly and publicly expressed her concern about the banks’ disappointingly slow progress in reducing their activities in Russia. The ECB asked banks to accelerate the implementation of their downsizing and exit strategies by adopting clear roadmaps and regularly reporting on the implementation of these plans to their management bodies and ECB Banking Supervision.
The ECB’s next step would indicate that no progress has been made in this area despite months of discussions. For example, the RBI allegedly missed several deadlines given by the ECB.
Unicredit’s share price – in contrast to Raiffeisen’s – has risen significantly since the outbreak of the war. However, this has practically little to do directly with Russia’s activities, rather it is due to the fact that, like the American Fed, the European Central Bank also started raising interest rates in the name of the fight against inflation. This significantly improved the profitability of almost the entire European banking sector.
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