The European Central Bank is pushing lenders from the region that still have operations in Russia to accelerate plans to shrink or exit units in the market after President Vladimir Putin's full-scale invasion of Ukraine.
The ECB recently "urged these banks to speed up their downsizing and exit strategies by adopting clear road maps" and regularly reporting on progress to their management bodies and the watchdog, according to Andrea Enria, who leads the ECB's supervisory board.
Several European banks have earned bumper profits in Russia over several years thanks to growth rates that were higher in their home markets. The war in Ukraine then exposed this group of lenders to risks to their finances and their reputations, with some taking more radical action to leave the market than others.
"I have repeatedly and publicly expressed concerns about the disappointingly slow progress made by banks in reducing risks stemming from ongoing operations in the Russian market," Enria wrote in a letter to members of the European Parliament.
Banks overseen by the ECB cut their Russia exposures 37% last year, with an acceleration in the fourth quarter, Enria said.
EU banks have about €45 billion ($49 billion) of total exposure to Russia as of the first quarter, or nearly half of that figure reported just after the February 2022 invasion of Ukraine. Raiffeisen, with more than €20 billion, is by far the most exposed, with management projecting as much as a 230-basis-point hit to Common Equity Tier 1 capital should it fully write down its Russia unit.
That compares with guidance of 40 basis points at UniCredit and 70 basis points at OTP, according to Tomasz Noetzel, a senior industry analyst for Bloomberg Intelligence. "Most institutions have also decided not to accept new business in Russia and are exploring different exit strategies, such as sale of business and winding down their operations in the Russian market," he wrote in a report.
Enria also said that the ECB is "continuously evaluating whether further supervisory actions are warranted" for individual banks, including in relation to their capital adequacy.
— With assistance from Marton Eder
