A high-ranking official publicly urged these financial institutions to leave Russia as soon as possible due to the European Union (EU) losing patience with European banks that continue to operate there in a tense relationship.
During the European Financials Conference on Tuesday, Andrea Enria, Chief Supervisor of the European Central Bank (ECB), emphasized the importance of banks focusing on reducing their exposures in Russia and ideally exiting the market as soon as possible. Enria stressed that this process not only received praise but strong encouragement from the ECB, as operating in Russia poses significant reputational risks due to the nation’s efforts to limit the impact of sanctions and support its war effort.
Amidst the uncertainty surrounding the continued business operations of Western banks in Russia, a January report published by the Financial Times shed light on the fact that only a small number of the 45 Western banks having subsidiaries in the country have successfully concluded their withdrawal process.
Enria’s comments emerged against the backdrop of recent news headlines emphasizing the profitability of certain Western corporations that continue to operate within Russia, despite the imposition of extensive sanctions in response to Russia’s invasion of Ukraine more than a year ago.
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According to a June 8 report from Novaya Gazeta Europe, the top 100 Western companies that remained in Russia generated substantial profits, contributing nearly 288 billion rubles (approximately $3.5 billion) in corporate taxes in 2022. Notably, Austria’s Raiffeisen Bank saw its net profit nearly quadruple to 141 billion rubles, as reported by an independent Russian news outlet.
Raiffeisen Bank is currently in the process of separating its operations in Russia, as reported by Reuters on May 23, citing information from three sources familiar with the matter.
However, severing ties with Russia proves to be a challenging endeavor.
Despite over a year passing since Russia’s invasion of Ukraine, a mere 526 companies have completely terminated their business in Russia, according to an ongoing study by Yale University. This is surprising, considering that 1,000 companies had announced voluntary cutbacks in operations within two months of the conflict’s commencement.
Yet, the obstacles to exiting the Russian market are formidable. As reported by the Financial Times in March, over 2,000 companies sought approval to leave, but logistical delays impeded progress.
Even ECB’s Enria admitted the difficulties faced by foreign banks in swiftly disengaging from Russia.
“Russian authorities are applying substantial pressure and introducing obstacles to hinder banks from exiting,” Enria stated during the conference. He pointed out that banks encountered difficulties in obtaining Russian presidential approval and faced significant investment losses during the process of leaving the country.
Nonetheless, EU banks managed to reduce their exposures to Russian counterparties by 37% in 2022, according to Enria.
“We have exerted immense pressure on banks to decrease their exposures,” Enria emphasized.
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