Exclusive-ECB pushes Raiffeisen, UniCredit to hold capital for Russia risk, sources say

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By Alexandra Schwarz-Goerlich, John O’Donnell and Valentina Za

VIENNA/FRANKFURT/MILAN (Reuters) – The European Central Bank is pushing Raiffeisen and UniCredit hold some capital as a buffer against potential risks stemming from their Russia businesses, two sources with knowledge of the matter said.

The ECB is seeking to address the dangers the two banks still face by operating in a country in which they no longer have effective control of their own activities, one of the people said.

The regulator could adjust the banks’ individual capital requirements, which supervisors set yearly to reflect risks which are not covered by broader, industry-wide capital thresholds, the sources said.

Reuters could not establish the size of a potential capital adjustment for the banks. Raiffeisen also faces demands from the ECB for a capital cushion to reflect its exposure to risky commercial real-estate loans, one of the sources said.

Spokespeople for the ECB and UniCredit declined to comment.

A spokesperson for Raiffeisen said that the bank had recently outlined in results that capital requirements would increase from the start of next year, declining to comment on Reuters’ reporting.

TENSIONS

Almost three years after Russia’s invasion of Ukraine, Raiffeisen Bank International and UniCredit, the biggest foreign banks in the country, have been slow to dial back their activities fuelling tensions with the regulator.

Raiffeisen and UniCredit, which would need approval from Russian authorities to dispose of local operations, are able to process cross-border payments, while Russia’s domestic banks have been ousted from the international payments network.

The ECB earlier this year ordered both to pare back in Russia, including international payments, or face possible penalties.

Raiffeisen has been working to meet ECB demands and reduce its Moscow ties, including by reducing euro payments processing involving Russia, another source with direct knowledge of the matter said.

In May, Washington threatened to cut the Austrian bank from access to the dollar over a deal it planned that the U.S. said had links to one of Russia’s oligarchs.

UniCredit sued the ECB over its order to step back in Russia, which the bank has said collides with Russian and international sanctions laws. In the meantime, the bank cut back payments, loans and deposits in Russia during the third quarter, moving closer to reduction goals it has set for 2025.

‘LITMUS TEST’

“This is a litmus test for the possibility of limiting the powers of European banking supervisors and, conversely, of the ECB’s ability to establish an adequate legal basis for its decisions,” said Andrea Resti, a Bocconi University finance professor who advises the European parliament on banking supervision.

An ECB request that they hold cushions against potential losses would also prepare them for potentially having to write down in full their Russian operations, one of the people said.

ECB supervisors last year said they continually evaluate where additional capital is warranted by European banks with activities in Russia.

Bart Joosen, a professor of financial law at Leiden University, referring to banks in general, said the ECB engages in discussions with lenders over its severity when it first identifies a risk on their balance sheet.

“At some point the ECB may decide that a given risk is not just high but unacceptable for them,” he said. The next step would be for the supervisor to make its demands to cut those risks legally binding and trigger an escalation process.

In parallel, the ECB sets annual capital demands for banks, so-called Pillar 2 requirements, after reviewing individual banks’ risks. Ahead of a final decision in December, which is legally binding, the ECB engages in discussions with banks after sending them a draft decision in the preceding weeks.