International banks slow to withdraw from the Russian market

While JP Morgan and Goldman Sachs were the first two major Wall Street banks to announce the end of their operations in Russia, the position of other international banks is more ambiguous. Most have been slow to withdraw from the Russian market, trying to buy time so as not to jeopardize their operations.

Threat of expropriation and risk of non-payment

International banks operating in Russia are attempting a balancing act. On the one hand, they face the threat of costly expropriation, which the Société Générale group has put at 1.8 billion euros.

Indeed, Andrei Turchak, General Secretary of United Russia, Vladimir Putin's political party, clearly threatened to " nationalize the production facilities of companies that announce their withdrawal and closure of production in Russia during the special operation in Ukraine ", considering these closures to be " premeditated bankruptcies ".

International banks are avoiding a hasty exit, but at the same time face other threats, such as the growing risk of non-payment. Russian borrowers, faced with inflation, slowing trade and a falling rouble, are likely to find it difficult to repay their loans.

The more banks depend on these borrowers, the more exposed they are. This is the case, for example, of the Austrian bank RBI, which owes Russia 45% of its average earnings over the past 3 years, and whose balance sheet in Moscow stood at 18 billion euros at the end of 2021.

No departure, but suspension of new activities

The major international banks therefore adopt a variety of strategies, but what most of them have in common is that they try to save time.

Although Deutsche Bank initially refused to pull out of the Russian market, it later reversed course and announced its intention not to deploy any new business in the country, although this decision did not affect its IT center.

 

US bank Citi, which last year decided to sell its consumer credit business in Russia, has also suspended all new activity. The bank said it was " acting urgently ", as its global exposure to Russia amounted to $9.8 billion. However, the Group warned that the sale would take time, given the unfavorable environment. It is difficult to convince foreign buyers, and virtually impossible for Russian banks, which are subject to major sanctions, to bid for the business.

Societe Generale, which wanted to show transparency by detailing its exposure to Russia, would lose 1.8 billion euros in CET1 capital, or "hard equity", if its Russian subsidiary Rosbank were expropriated. It is therefore the most exposed French bank, but for all that, it has no plans to transfer its Russian teams abroad.

" The group is fully able to absorb the consequences of a possible extreme scenario that would affect property rights over its banking assets in Russia," the bank justified itself in a recent press release.

For its part, Crédit Agricole, which employs 170 people in Russia, is not planning to move either, nor is Commerzbank, Germany's 2nd largest banking group, which has 134 employees in the country. As for HSBC, while it is not accepting any new business in Russia, it has no plans to leave.