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The European Central Bank has told all Eurozone lenders with operations in Russia to speed up their withdrawal plans because of fears they could be hit by US punitive measures.
The ECB has written to lenders in recent weeks asking for detailed plans on their exit strategies, according to several people with knowledge of the communication. Lenders need to provide the regulator with an “action plan” for their Russian business as early as June, some of the people said.
Last week, Austria’s Raiffeisen Bank International was forced to abandon a deal to swap assets in Russia for ones in Europe after pressure from US authorities. The US intervention has led to concern at the ECB that RBI and other lenders could be targeted in future crackdowns.
“This could lead to serious damage to the banking system if the US authorities take sanctions,” said a person briefed on the ECB’s position.
The letters underline the increasing pressure from Washington over European groups that might support Russia’s war in Ukraine more than two years after the invasion.
“The ECB’s response to the US interventions shows the big dependency of Europe on the US,” said an adviser to the banks with Russian subsidiaries. “We are more followers than leaders on judgments involving European companies.”
The US Treasury did not immediately respond to a request for comment.
The person briefed on the ECB’s position said supervisors there wanted to avoid European banks facing a similar fate as ABLV, a Latvian bank that was shut down after the US Treasury department accused it of “institutionalised money laundering” as well as breaches of North Korean sanctions and cut off its access to the US financial system in 2018.
The letters from the ECB have been written with different levels of severity depending on how advanced each bank is in pulling out of Russia, according to people with knowledge of their contents. The central bank has been calling on Eurozone banks to look for an exit from Russia since Moscow launched its full-scale invasion of Ukraine in February 2022.
At one extreme, RBI, which has the biggest exposure to Russia among the European lenders, has been told to reduce its lending in the country by two-thirds from its current level by 2026. The bank, which faces potential fines by the ECB if it fails to comply, has already shrunk its Russian loan book by 56 per cent since the war began.
Meanwhile, other banks including Italy’s UniCredit — the lender with the second-biggest exposure — have been asked to provide the ECB with a detailed breakdown of their plans for their operations. UniCredit has been given a deadline of June 1 to respond. The ECB declined to comment.
UniCredit and OTP — the Hungarian bank that is not under direct supervision of the ECB — have in the past year started to repatriate profits from their Russian subsidiaries in the form of quarterly dividend payments.
According to people with knowledge of how the repatriation system works, the banks were required to make a request to Russian authorities, which allowed the payments of up to half their subsidiaries’ net profits, as long as they paid local taxes.
Last year, UniCredit received €137mn from its Russian subsidiary, while OTP received €135mn. UniCredit declined to comment. OTP said the repatriated dividends were part of its efforts to reduce its presence in Russia.
RBI’s stranded profits were originally intended to be repatriated as part of its planned €1.5bn asset swap deal, according to a person briefed on Russia’s decision-making. The bank abandoned the deal this month after the US Treasury warned the lender that it risked being cut off from the US financial system if it went ahead.
The Vienna-based lender said it had not taken a dividend from its Russian division “since the start of the war” and did not expect to be able to do so in the future.
“To receive a dividend, the Russian authorities were very clear: commit to remaining in the market, meet business targets, and dividends can be distributed . . . we have been reducing business substantially and are actively looking to sell. This of course is contrary to committing to remain in the market,” they said.
US authorities are also concerned about recent reports by the Financial Times of Raiffeisen’s expansion in Russia. The bank posted 2,400 job ads between December and mid-April, many of which stated the bank was looking to grow in the country.
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