Following our analysis of Russia’s impact on European banks, with two updates to Societe Generale (OTCPK:SCGLF) (OTCPK:SCGLY) and Unicredit (OTCPK:UNCFF) (OTCPK:UNCRY), we continue with Raiffeisen Bank International AG (RAIFF, OTCPK:RAIFY). The Austrian bank and its subsidiaries are engaged in corporate, retail and investment banking.
A recent study by Credit Suisse helped us narrow down Europe’s financial relationship with Moscow. The report shows that French and Italian banks have the greatest exposure, ahead of Austrian banks. According to the Bank for International Settlements, the Swiss Institute estimates that Italian and French institutions have cross-border exposures of more than $30 billion, while Austrian banks have exposures of around $2.2-23 billion. Regarding the exposure of individual institutions, we note that Raiffeisen Bank International is clearly the bank with the largest revenue share and the largest loan amount in Russia, as is Ukraine. The Austrian bank is ahead of Societe Generale, whose exposure to Russia accounts for 2.8% of group net banking income and 2.7% of net income in 2021. Finally, our UniCredit has about $7 billion in Russian loans.
Despite the risks, loan-to-deposit ratios are well below 100% for all three banks, and Russia’s loan risk is a low percentage of its total lending – more specifically – Raiffeisen Bank 12% and Russia 2%. Rosbank (Société Générale) and UniCredit.
Raiffeisen Bank Russia Exposure and Potential Impact
According to Reuters, the Austrian agency is considering the possibility of dropping the group’s activities in Russia. It will be the first European bank to leave the country after the Ukrainian invasion. A similar decision could lead one of the biggest Central and Eastern European banks to pull out of Russia and Ukraine, but it could be triggered if the group needs additional liquidity for its operations in those two countries.
Raiffeisen Bank International (RBI) is Russia’s 10th largest bank by assets and has been operating in the country since the collapse of the Soviet Union 30 years ago. The group’s operations in the region contribute about a third of the bank’s net profit.
Temporary suspension of activities was also included among the options under consideration. Russian Prime Minister Mikhail Mishustin said Moscow would temporarily restrict foreign investors trying to get rid of its Russian assets, complicating any attempts to abandon operations in the country.
Given the importance of Russia to the Austrian bank, the bank released a full update in early March highlighting specific details.
RBI’s FY 2021 results showed that the agency’s loans to Russia and Ukraine stood at 11.6 billion euros and 2.2 billion euros, accounting for 11.5% and 2.2% of the RBI’s total loan book, respectively.
RBI Russia said it “continues to provide all key banking services to support its customers” despite extremely difficult conditions under existing legislation and orders from regulators.
The potential cost of leaving Russia is unclear, but given the bank’s CET1 ratio, we think the Austrian Institute is strong enough to support any business disruption in the region. Furthermore, any decision to leave Russia would still be made in coordination with regulators and central authorities, which could impose its own terms.
RBI has invested 2.4 billion euros in its Russian subsidiary. The cancellation of investments and assets will reduce the group’s core equity Tier 1 ratio by more than 100 basis points, currently at 13.14%.
On the macroeconomic front, our in-house team believes that the main risk to the banking sector from the Russia-Ukraine crisis is slower growth due to higher energy prices, which is reflected in the interest rate outlook. On the microeconomic front, especially Raiffeisen Bank International, we now have a Hold rating.
Latest coverage of Banking and Diversified Finance:
Euronext: A good link to VIX LSE Group: We see upside BNP Paribas: Everything is fully priced at Credit Suisse: Valuations less important than earnings UniCredit: Pass again (for now)
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