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Austria’s Raiffeisen Bank International warned that future dividend payments would be impacted by efforts to accelerate its exit from Russia under pressure from regulators as it reported record profit in the country.
The Vienna-based bank said its Russian and Belarusian operations accounted for more than half of its global profits in the first six months of 2024, despite ongoing plans to “heavily scale back” activity in these markets.
Group operating profit for the first half increased 7 per cent from the same period a year ago, to €1.324bn. Of that, €720mn came from Russia and Belarus.
RBI, the largest western bank still operating in Russia, has come under mounting regulatory and political pressure in recent months to reduce its exposure to the country.
In May, the European Central Bank ordered Raiffeisen to bring forward its plans to deconsolidate from Russia, in a move the bank warned would make a smooth sale of its Russian arm hard, if not impossible, to achieve.
The bank has now outlined what it sees as a prudent base case outcome: a total write-off for its Russia business.
Doing so would lead to a 3 percentage point hit to the bank’s common equity tier one capital, a key measure of a lender’s financial health, the bank said.
CET1 would drop from 17.8 per cent of risk-weighted assets, to 14.7 per cent without the Russian business.
“Any decision on dividends will be based on the capital position of the group excluding Russia,” the bank said.
The payout of a dividend of €1.25 per share for 2023 has already been taken into account in its capital calculations.
RBI said it was “very difficult to make a realistic forecast” on what would happen to its Russian business. It said it faced factors beyond its control, including punitive Russian laws for western businesses trying to exit the country, and approvals in Europe and the US for who the bank’s Russian assets could be sold to.
RBI shares rose 6 per cent in Vienna on Tuesday morning.
The lender’s Russian arm has assets of €22.5bn and a book value estimated by analysts of about €4bn.
The bank said it had wound back business relationships in the country, with a 60 per cent decrease in the size of its loan book since Russia’s full-scale invasion of Ukraine in February 2022.
Despite imposing deliberately unattractive savings rates on its accounts, Russian depositors have continued to use the bank, perceiving it as a safe “western” lender, however.
With rates paid for bank holdings at the Russian Central Bank continuing to rise, that has led to mounting profits for the division, even though it is unable to repatriate them to Austria.
Restrictive laws put in place by the Kremlin mean banks, and many other large western businesses, are unable to take profits out of the country and must have presidential approval for any sale of their Russian businesses.
Raiffeisen has explored at least two complicated asset swap arrangements in order to try and get at its trapped earnings. Both have fallen foul of regulators, however, over fears that they improperly benefit sanctioned individuals in Russia.
A proposed €1.5bn plan to swap marooned RBI Russian assets for a holding in the Austrian construction company Strabag was abandoned in May after warnings from US and European authorities over its connections to the sanctioned oligarch Oleg Deripaska.