The top seven European banks by assets in Russia – Raiffeisen Bank International, UniCredit, ING, Commerzbank, Deutsche Bank, Intesa Sanpaolo and OTP – reported a combined profit of more than 3 billion euros in 2023, despite promises to minimize their Russian exposure after the large-scale invasion of Ukraine.
These profits were three times higher than in 2021 and were partly generated by funds that banks cannot withdraw from the country.
Rising profitability has seen European banks pay around €800 million in taxes, up from €200 million in 2021, a Financial Times analysis shows.
The fees paid by European banks, equivalent to about 0.4 percent of all of Russia’s expected non-energy budget revenue for 2024, are an example of how foreign companies staying in the country are helping the Kremlin maintain financial stability despite Western sanctions.
More than half of the €800 million in tax payments by European banks was made by Austria’s Raiffeisen Bank International, which has the biggest presence in Russia among foreign lenders.
RBI’s Russian profits tripled to 1.8 billion euros between 2021 and 2023, accounting for half of the Austrian group’s total profits, compared with about a third before the war.
In addition to regular tax contributions in 2023, Raiffeisen paid 47 million euros as a result of an exceptional tax imposed by the Kremlin on some companies last year.
Following President Vladimir Putin’s full-scale invasion of Ukraine in February 2022, the RBI has repeatedly expressed its plan to downsize and divest its Russian operations. It has faced persistent criticism from the European Central Bank and the US Treasury Department for not yet completing the withdrawal.
Although the RBI (Raiffeisen Bank International AG) has made some efforts to reduce its exposure to Russia, such as a 56% reduction in its loan portfolio from the beginning of 2022, some measures point to the opposite. RBI’s recent job announcements in Russia hint at ambitious plans to “expand its active client base manyfold,” the FT revealed.
Deutsche Bank, Hungary’s OTP and Commerzbank have significantly reduced their presence in Russia, which was already small compared to the RBI, their representatives said. Intesa is the closest to exiting this market, but has yet to sell its Russian business. UniCredit declined to comment on the data.
US banks were not included in the Financial Times calculations because they do not disclose their Russian results in their reports.
But despite the closure of its corporate and retail businesses, Citigroup, the fourth largest US lender, which made a profit of $149 million and paid $53 million in Russia in 2023, became the the fourth largest taxpayer among Western banks in Russia, according to the Kyiv School of Economics, which made the calculations based on data from the Russian Central Bank.
Another American giant, JPMorgan, reported a profit of $35 million and paid $6.8 million in taxes, according to the research institution.
Western creditors have benefited from the imposition of sanctions on most of the Russian financial sector, which has been blocked from accessing the SWIFT international interbank payments system. This made the international banks a financial lifeline for Moscow vis-à-vis the West.
Such factors contributed to a threefold increase in RBI’s net fee income in Russia, from EUR 420 million in 2021 to EUR 1.2 billion in 2023.
“It is not only in RBI’s interest to stay in Russia. [Banca centrală a Rusiei] will do everything possible not to let them go because there are few unsanctioned banks through which Russia can receive and send SWIFT payments,” said a Russian banking executive.
Banks have also benefited from interest rate hikes, with the Russian central bank’s key rate now at 16%, almost twice its pre-war level. The rate hikes helped lenders earn windfalls from variable-rate loans and accumulate additional income from funds trapped in Russian deposit accounts.
But banks cannot access cash earned in Russia because of regulatory restrictions imposed in 2022 that banned dividend payments from Russian subsidiaries to businesses in “unfriendly” Western countries.
“We can’t do anything with the Russian deposits except keep them at the central bank. So as interest rates went up, so did our profits,” said an executive at a European bank with a Russian subsidiary.
Blocked cash is a significant obstacle to exiting Russia. From early 2022, the banks also required personal authorization from President Vladimir Putin to sell their Russian operations.
Only seven Western banks – out of 45 on the list of those needing presidential approval to exit – have received such authorization, including Mercedes-Benz Bank and Intesa.
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Tags: Big European Banks Billion Euro Profit Russia Paid Tax
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