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Banks ensnared by Russia's allure

Possible Face-off in June?

Im Juni sprechen die G7-Staaten über die 
Aktivitäten westlicher Banken in Russland.
Im Juni sprechen die G7-Staaten über die Aktivitäten westlicher Banken in Russland.

Banks ensnared by Russia's allure

Western banks, including those from Germany, Austria, and Italy, have remained heavily indebted to Russian borrowers even after the invasion of Ukraine. They now face difficulty in completely withdrawing, resulting in significant financial pain.

When Russia attacked Ukraine in February 2022, European banks in Moscow had to make a tough choice - either exit quickly, giving up their lucrative presence there within a day, or stay on and hope for normality to return someday. Over two years later, it has become evident that the second option has proven to be a mistake.

According to a recent study by Eric Dor of the IESEG Business School in Lille, banks from the UK, France, and Switzerland made bold moves to withdraw, slashing their outstanding credit volume in Russia by more than 80 percent. In contrast, banks from Germany, Austria, and the US have been more hesitant. For example, German financial giants Commerzbank and Deutsche Bank still hold roughly 60 percent of their credits in Russia, despite not actively operating there for a while. Austrian banks, such as Raiffeisen Bank International, are even more tied, with almost 80 percent, as Russian business had always been a significant part of their strategy. "These banks chose to stay as long as they had customers who were not subject to sanctions," explains Dor in an interview with "Capital." "Now they're trying to leave, but it's much, much harder."

Factors increasing the pressure on the remaining banks include new secondary sanctions imposed by the US government at the end of 2023. These sanctions target foreign banks facilitating trade with Russia that could be used for military purposes. Additionally, even Chinese banks are now pulling out, joining US and EU banks in the exit. The European Central Bank is urging eurozone banks to divest from Russia and may soon force Raiffeisen Bank to decrease its credit volume there. Meanwhile, the Kremlin is tightening its grip, freezing the assets of Western companies, including German banks.

Banks are thus caught in a dilemma with no easy exit. "On one hand, there are the sanctions from the US and the EU, which hinder many Russians from doing business with them, thereby limiting their options to sell their assets," says Dor. "On the other hand, the Russian government imposes restrictions, demanding approval for any sale, and is evidently taking advantage of the situation to make it difficult to obtain a fair price."

The standoff may escalate, with the potential for a full exit before June when the G7 countries meet for a summit in the Italian city of Fasano. The summit agenda includes discussions on the roles of Western banks in Russia and possible measures to use Russian foreign currency to support Ukraine militarily. After this, it could become increasingly challenging, if not impossible, to withdraw from Russia.

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