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Sanctions Against Russia: Massive Threat for Austrian Banks

Published: March 19, 2014; 22:56 · (Vindobona)

Brussels plans to impose economic sanctions on Russia. The Austrian financial sector would suffer enormously an escalating conflict with Moscow.

Sanctions Against Russia: Massive Threat for Austrian Banks / Picture: © Vindobona.org

In case of economic sanctions against Russia, foreign investors have to fear countermeasures. According to insiders, the Russian government already prepares the confiscation of properties and assets held by U.S. and European companies. The Austrian Chamber of Economics (WKO) underlined that the diplomatic conflict may soon become an economic conflict. “The current political situation may deteriorate the excellent relation between Russia and Austria.” Representatives of the WKO commented that the current crisis will leave its marks.

Regarding the financial sector, Austria would be massively affected by economic sanctions. UniCredit Bank Austria and RBI (Raiffeisen Bank International) are among the 15 largest Russian banks. Also banks from the Netherlands and France would have to face enormous difficulties. In total, the exposure of EU banks in Russia comes at € 115bn.

Compared to other banks in Europe, the Austrian banking sector is particularly vulnerable to political risks in Eastern Europe. In the last few years, Bank Austria and Raiffeisen Bank International (RBI) have put much effort in the expansion into the Russian banking market. Particularly for RBI, Russia has become an essential part of the CESEE market. Last year, about 40% of RBI´s net income was earned in Russia.

Apart from the political risks, the Russian banking market also involves economic risks. Economists warn that the non-performing loan quota may soar rapidly in the next few months. Already in the fourth quarter of 2013, the Russian ruble began to weaken. Since the beginning of 2014, the ruble dropped 20% against the euro and 11% against the US-dollar.

Due to the rapid growth in commercial and consumer loans, the dependence of foreign banks on Russia rose substantially. At the end of 2013, the Russian market was responsible for 15% of RBI´s total loan exposure. Last year, the net income of RBI´s Russian affiliate was up by 47%. In Russia, Bank Austria´s net income rose by 11%. In Russia, RBI loan exposure comes at € 10.2bn while Bank Austria´s loan exposure totals € 12.5bn.

In the last few weeks, Russian business customers began to withdraw funds from EU countries. According to RBI, the Russian affiliate already registers a massive inflow of assets. In the retail banking segment, by contrast, RBI registers a slight outflow. Customers tend to increase their cash reserves and to convert them into dollars.”

Not only the financial sector, but also exporting companies are deeply concerned. Above all, Austrian exporters fear a further devaluation of the Russian ruble. Moreover, the Russian government might impose trade barriers, political observers say. Last year, exports of Austrian companies to Russia came at € 3.48bn. The Austrian Chamber of commerce does not recommend leaving Russia now. “Everybody is extremely cautious.”

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