High risk, high profit: How the Austrian money house RBI profits from Russia

High risk, high reward
How the Austrian money house RBI profits from Russia

The Austrian RBI is not moving away from its subsidiary bank in Russia. Although the money house cannot skim off the profits in Russia, experts assume that the RBI wants to sit out the Ukraine war.

At the Austrian bank Raiffeisen Bank International (RBI), thanks to the controversial but highly profitable business in Russia, profits are in the billions. On average, analysts believe that consolidated profit more than doubled to 657 million euros in the fourth quarter, according to a consensus estimate published on the bank’s website. Added together, this would result in a net profit of 3.46 billion euros for 2022 – which would be a new record. In the previous year (previous year: 1.37 billion euros got stuck.

According to the experts, the most important source of income was once again the subsidiary bank in Moscow, which RBI is still holding on to almost a year after Russia invaded Ukraine. The downside for RBI: the parent company in Vienna cannot access the profits due to a regulation by the Russian central bank. Therefore, in the last quarterly report, the bank reported a profit excluding the business in Russia and Belarus and adjusted for proceeds from a sale. The bank is also not allowed to pay dividends from profits in Russia and Belarus.

Driven by the appreciation of the ruble

The shareholders should still have a good chance of a distribution after they got nothing in the previous year. The experts at Erste Group expect a distribution of EUR 1.5 per share and a dividend yield of 9.9 percent for around 2022, based on net profit excluding Russia. In the previous year, RBI, which is almost 60 percent owned by the Austrian regional Raiffeisen banks, actually wanted to pay EUR 1.15 per share, but then pulled the ripcord because of the Ukraine war.

“Most of the profits in 2022 will come from Russia,” states Erste Group analyst Thomas Unger. Already in the first three quarters, the business there contributed half of the net profit of 2.8 billion euros. The result was driven by the appreciation of the Russian ruble against the euro. The ruble appreciated 13 percent against the euro last year. In addition, the Russian subsidiary – the tenth largest bank in the country – recorded an increase in interest income.

According to fund manager Wolfgang Matejka, RBI has also benefited from energy payments to Russia. In Europe, the Austrian institute is considered a “trustworthy link” to the bank of the Russian state-owned company Gazprom, said the asset manager. By decree, Russia had demanded payment for gas deliveries in rubles, with Gazprombank handling the transaction. RBI intends to present preliminary annual figures on February 1st.

Ukraine raises allegations

How the Russian business will continue is still unclear. The management in Vienna is taciturn about this. For months, the bank has stuck to the wording that it is examining all strategic options, including a controlled exit from Russia and Belarus. “My impression is that the RBI is trying to sit it out. They say they are looking for solutions, but it looks like they hope that there will eventually be a truce and a political solution,” said an industry expert who remains anonymous wanted.

Pressure to leave the country is coming from Ukraine, where the bank also has hundreds of branches. RBI was accused of granting loan deferrals to Russian soldiers. The bank argued that, like all Russian banks, it was required by law to do so. The Ukrainian subsidiary stated that the bank complies with all EU legal requirements, which recognize Ukraine’s territorial, political and economic integrity. “Contrary to claims on social media, we would like to assure that RBI does not carry out any business activities in the areas of Donetsk and Luhansk regions and the Crimean peninsula, either directly or through its subsidiaries”.

Pressure is also coming from Ukraine’s central bank, which has repeatedly asked RBI and others to shut down their business in Russia. The central bank criticizes on its website that it is unacceptable that eleven months after the start of the war no progress was made in the decision. “Each morning we observe a moment of silence to honor our fallen. Meanwhile, companies that continue to operate in Russia add up their profits.”

Morally in a dilemma

It is clear that the Russian business poses a moral dilemma for RBI. “Of course it’s a moral issue, that’s not a question at all,” admitted Heinrich Schaller, head of RBI shareholder Raiffeisenlandesbank Oberösterreich. There is hardly any criticism in Austria, apart from demonstrations with a few dozen participants in front of the bank’s headquarters. The political actors are remarkably calm. The banking group is considered the house bank of the conservative governing party ÖVP and an important economic factor in the country. “The exercise of further business activities on the Russian market, insofar as they comply with national legislation and do not contradict EU sanctions, is the sole decision of private companies,” the Foreign Ministry said on request.

Along with the Italian UniCredit, RBI is the western bank with the greatest exposure to Russia. It has been working there for almost 30 years, employs a good 9,000 people, runs around 130 branches and looks after more than 2.35 million customers. On its website, it points out that the Russian subsidiary is one of the country’s most reliable banks, according to rating agencies. Since the outbreak of war, new business has ceased and the credit volume has been reduced by a quarter.

The obstacle to a sale is that international banks can only sell their Russian business with special permission from President Vladimir Putin. This naturally depresses the purchase price. There are some interested parties, said RBI boss Johann Strobl. He didn’t want to name any names. Bank circles have heard that these are Russian investors. Risk chief Hannes Mösenbacher pointed out in autumn that there were still numerous international customers in Russia who would be happy that a western bank was active in the market. “We’re not running away from that responsibility.”

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