Russia may cancel loans to warring soldiers in Ukraine
2023.02.13 04:20
Russia may cancel loans to warring soldiers in Ukraine
By Ray Johnson
Budrigannews.com – The growing pressure for the remaining foreign lenders in Russia to leave has been exacerbated by a Russian scheme to grant loan payment holidays to troops fighting in Ukraine and for banks to write off the entire debt if they are killed or injured.
A few European banks, including Raiffeisen Bank International in Austria and UniCredit in Italy, are still making money in Russia nearly a year after Moscow launched what it calls a “special military operation” in Ukraine.
The loan relief program has been criticized not only by the central bank of Ukraine, which said it had asked Raiffeisen and other banks to stop doing business in Russia, but also by investors who are worried about the scheme’s reputation.
The fact that Raiffeisen and UniCredit are the only foreign banks on the central bank’s list of 13 “systemically important credit institutions” demonstrates their significance to Russia’s economy, which is battling severe Western sanctions. Both banks are deeply ingrained in the Russian financial system.
Some investors have come forward with their reservations due to their support of the Russian economy at a critical time for President Vladimir Putin.
According to Norwegian pension fund KLP’s Kiran Aziz, “companies should be very careful,” there is a significant risk that the banks could be used to “in other ways finance the war.” Shares in Raiffeisen and UniCredit are held by KLP funds.
Vyacheslav Volodin, the influential speaker of the lower house, made it abundantly clear in September that the payment holiday law was significant to Russia.
He stated:
“We must be sure that they will be taken care of” because “soldiers and officers ensure the security of our country.”
According to Eric Christian Pederson of Nordea Asset Management, which manages more than 320 billion euros, he was also concerned about Raiffeisen and UniCredit’s presence in Russia and discussed it with them.
He added, “illustrates the dangers of operating in jurisdictions where companies can… be forced into actions that go directly against their corporate values” the requirement that banks grant payment holidays to soldiers.
Pederson stated, “We believe that it is right for businesses to withdraw from Russia, given its unprovoked attack on Ukraine.” According to data from Refinitiv, Nordea owns UniCredit shares.
According to data from the Russian central bank, banks restructured 167,600 loans for military personnel or members of their families that were worth more than 800 million euros between the 21st of September and the end of the previous year.
According to Raiffeisen, the “government-imposed loan moratorium” only affects “negligible” 0.2 percent of its Russian loans. In Russia, where it has been for more than 25 years, the bank has loans totaling almost 9 billion euros, including to businesses.
Due in large part to a profit of more than 2 billion euros from its Russia business, it generated a net profit of approximately 3.8 billion euros in the previous year.
The rule was “mandatory under the federal law… for all banks” according to UniCredit, which entered the Russian market almost 20 years ago when it acquired an Austrian bank. The company did not specify how many of its loans had been forgiven.
The Italian bank went on to say that the customers it served in Russia were businesses rather than individuals. Russia contributed more than one billion euros to UniCredit’s total revenue of more than 20 billion euros the previous year.
However, Raiffeisen’s shares, which have a smaller free float, have not recovered, despite an initial sharp fall in UniCredit’s shares on February 24, 2017, when Russia moved its troops into Ukraine.
A spokesperson for Swedbank Robur, one of the biggest investors in Scandinavia, said, “Any profiteering on the ongoing war is not acceptable or aligned with our view of responsible investments.” The spokesperson also said that reputational risk was a concern.
Swedbank Robur stated that it holds stakes in both banks but did not provide any specifics.
When questioned about their opinions, larger institutional investors, such as Amundi in France and Norway’s sovereign wealth fund, which advocates responsible investing, declined to comment.
Is it closing?
The exits of some foreign banks have been relatively quick.
Societe Generale of France (OTC:) dissolved its ties to Russia in May by selling Rosbank to the Interros Group, run by businessman Vladimir Potanin.
However, a person with knowledge of the situation stated that regulators at the European Central Bank (ECB) are paying attention to the continued presence of two of the largest banks in Europe.
The chief supervisor of the ECB, Andrea Enria, stated that Russian authorities were acting more “hostilely” and that the exit window was “closing a bit.” However, he also expressed support for any bank that wanted to leave or reduce their business there.
Raiffeisen and UniCredit both confirmed that they had talks with the ECB about Russia.
“Fully and regularly up to date on our strategy of orderly de-risking our exposure to Russia,” UniCredit stated, keeping the ECB informed.
However, Raiffeisen’s profit from its Russian business more than tripled last year, with money still available.
In the meantime, Russian savers deposited more than 20 billion euros at the bank, which provides a location where funds can be deposited without the risk of sanctions.
Despite regulatory pressure, this indicates that banks have little incentive to leave Russia.
Furthermore, politicians in Austria, which has historical and economic ties to Russia and eastern Europe, remain largely silent regarding Raiffeisen’s ongoing Russian presence, which has led to protests outside the company’s headquarters in recent months.
CEO Johann Strobl of Raiffeisen has stated that he is looking into options for the Russian company. However, he points out that any move would be difficult because the bank is not “a sausage stand” that could close overnight.
For some, the issue is more moral than financial.
Among those who have expressed doubts about staying is Heinrich Schaller, head of Raiffeisenlandesbank Oberoesterreich, RBI’s third-largest shareholder and deputy chairman of Raiffeisen.
He recently stated, “Of course it is a question of morals.” There’s no denying it.”
Regardless of what shareholders say, a Putin decree is likely to make it difficult to leave Russia. Unless the Russian President grants an exemption, it prohibited investors from so-called hostile nations from selling bank shares.
