Following our analysis on the Russian impact on the European banks with two updates on Société Générale (OTCPK: SCGLF) (OTCPK: SCGLY) and Unicredit (OTCPK: UNCFF) (OTCPK: UNCRY), we move on with Raiffeisen Bank International AG (RAIFF , OTCPK: RAIFY). The Austrian bank, together with its subsidiaries, engages in corporate, retail, and investment banking activities.
A recent study from Credit Suisse helps us to narrow down the extent of European financial relations with Moscow. The report indicates that French and Italian banks have the largest exposures, ahead of Austrian ones. Based on data from BIS, the Swiss institute estimates that the cross-border exposure for Italian and French institutions are over $ 30 billion, while exposure for Austrian lenders amounts to around $ 22-23 billion. Concerning the individual institutional exposure, we note that Raiffeisen Bank International is clearly the one with the most significant share of revenues made in Russia and with the largest amount of loans in the country, considering also Ukraine. The Austrian bank precedes Société Générale, in numbers French bank exposure to Russia represents 2.8% of group net banking income in 2021 and 2.7% of its net income. Lastly, we have UniCredit with exposure to Russian loans of about $ 7 billion.
Despite the exposure, for all three banks, the ratio of loans to deposits is well below 100% and that exposure to loans in Russia represents a low percentage of their total lending – more specifically – it is 12% for Raiffeisen Bank and 2% for both Rosbank (Société Générale) and UniCredit.
Raiffeisen Bank Russian Exposure & potential impact
According to Reuters, the Austrian institution is considering the possibility of abandoning the group’s activities in Russia. It would be the first European bank to leave the country following the invasion of Ukraine. A similar decision, which could see one of the largest central and eastern European banks pull out of Russia and Ukraine, is not forthcoming but could be triggered if the group’s operations in the two countries require additional liquidity.
Raiffeisen Bank International (RBI) is the 10th largest bank in Russia in terms of assets, and it has operated in the country since the collapse of the Soviet Union 30 years ago. The group’s operations in the region contributed about a third of the bank’s net profits.
Among the options considered there would also be a temporary suspension of activities. Russian Prime Minister Mikhail Mishustin said that Moscow will temporarily restrict foreign investors trying to get rid of their Russian assets, complicating any attempts to abandon their businesses in the country.
The bank released a full update in early March highlighting specifics, given Russia’s importance to the Austrian bank.
RBI’s 2021 FY results show that the institution had an exposure of loans for € 11.6 billion to Russia and for € 2.2 billion to Ukraine which is, respectively, 11.5% and 2.2% of RBI’s total loan book.
The Russian division of RBI said that it “continues to offer all key banking services to support its customers despite extremely difficult conditions“based on existing legislation and orders from the regulator.
The potential cost of leaving Russia is unclear, but given the bank’s CET1 ratio, we believe that the Austrian institute is robust enough to support any blocking of operations in the area. Moreover, any decision to leave Russia will still be made in coordination with the regulators and central authorities, which may impose its own terms.
RBI had invested € 2.4 billion in its Russian subsidiary. The cancellation of the investment and assets would take away just over 100 basis points from the group’s Core Equity Tier 1 ratio, currently standing at 13.14%.
In macroeconomic terms, our internal team believes that the main risk for the banking sector stemming from the Russian-Ukrainian crisis, is the hike of energy prices with a consequent slowdown in economic growth, which is reflected in the outlook for interest rates. On microeconomic terms and looking at Raiffeisen Bank International specifically, we affix a hold rating right now.
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