Days after Vladimir Putin’s invasion of Ukraine, Raiffeisen, an Austrian bank, announced that it was mulling over the idea of selling off its business in Russia. However, fast forward twenty-seven months later, and the lender’s unit in the country is thriving. With a staff that has swelled to nearly 10,000 employees, marking a 7% rise since 2022, the bank seems to be flourishing in the Russian market. In the previous year alone, its profit soared to €1.8bn ($2bn)—a figure that surpasses the earnings of any of the bank’s other subsidiaries, and a staggering threefold increase since 2021. Not only is Raiffeisen one of the largest Western banks in Russia, but it is also considered “systemically” important to the country’s economy, a designation shared with a select few other lenders. Moreover, the bank’s financial contributions matter significantly to the Kremlin’s coffers, as evidenced by the half a billion dollars in tax that it paid last year.
Despite Raiffeisen’s impressive performance in Russia, it is not the sole Western bank operating in the country. In fact, the combined profits of the five EU banks with the largest Russian operations have also seen considerable growth, reaching close to €3bn in 2023. Such success, however, has made these banks prime targets. In May, the United States issued a warning to potentially restrict Raiffeisen’s access to its financial system due to the bank’s dealings in Russia. To address these concerns, the lender has announced its intention to halt dollar transfers out of the country starting on June 10th. On the flip side, Russia has begun seizing the assets of Western banks that it deems as “unfriendly”, putting the Russian paper profits of these lenders at risk of being wiped out.
As tensions escalate between Russia and the West, the fate of Western banks in Russia hangs in the balance. Raiffeisen and its counterparts must navigate a treacherous landscape filled with geopolitical uncertainties and potential financial repercussions. The bank’s decision to halt dollar transfers out of Russia is a strategic move aimed at appeasing critics and mitigating risks to its operations. Nevertheless, the threat of further sanctions looms large, casting a shadow of doubt over the future prospects of Western banks in the Russian market.
In the face of mounting pressure and increasing hostility towards Western institutions in Russia, banks like Raiffeisen must tread carefully to safeguard their interests and ensure their continued viability in the country. The Russian government’s crackdown on “unfriendly” Western banks underscores the challenges and risks inherent in operating in a politically charged environment. As Western lenders grapple with the shifting dynamics of the Russian market, they must remain vigilant and adaptable to navigate the uncertainties that lie ahead.
In conclusion, the story of Raiffeisen and other Western banks in Russia is a testament to the complex interplay between politics, economics, and finance on the global stage. The evolving situation in Russia underscores the importance of strategic foresight and risk management in the face of geopolitical turbulence. As these banks face mounting challenges and uncertainties, their ability to adapt and weather the storm will determine their long-term success in the Russian market. Only time will tell how this high-stakes game of financial brinkmanship will unfold, and what implications it will have for the future of Western banking in Russia.