(Bloomberg) -- Raiffeisen Bank International AG said it is stepping up efforts to reduce business in Russia, after facing increased scrutiny of its most profitable unit from regulators.
The bank said it will drastically scale back operations in the country with initial steps already in effect, according to an earnings report published Tuesday.
The Viennese lender, which operates the largest foreign-owned bank in Russia, is shrinking its business after receiving a European Central Bank order in April to cut its loan book and reduce payment services. UniCredit SpA, another European lender still active in Russia, has taken steps questioning the legality of the ECB order.
“In line with the ECB’s requirements, we accelerate the reduction of the business volume in Russia,” Raiffeisen Chief Executive Officer Johann Strobl said in a statement.
Raiffeisen’s shares rose as much as 7.9%, erasing this year’s decline. They traded 3.9% higher at 4:24 p.m. in Vienna.
The bank said restrictions in Russia meant it was only providing loan and payment services to a pre-approved list of large and internationally active companies. The loan book will shrink 55% by 2026 and its payment business will fall a third by the end of the year, limited to euro and Chinese yuan transactions.
It doesn’t offer term deposits and current accounts pay no interest, compared with a central bank key rate of 18%, while carrying high maintenance fees.
Raiffeisen has faced criticism for maintaining its Russian operations following Vladimir Putin’s invasion of Ukraine in 2022. The bank made more than half its pre-tax profits at the unit last year, but capital limitations mean it can’t access those earnings, and the business is exposed to the risk of US and European sanctions.
Efforts to repatriate about €1.5 billion ($1.6 billion) in profits via a complex share deal broke down in May after warnings from US and European regulators. The bank has unsuccessfully been working on a sale or spin off of the unit for two years. Strobl said those efforts would continue.
Any deal would need to receive the approval of five institutions, and would likely entail Raiffeisen keeping a 40% minority stake in the unit, Strobl told analysts in a conference call, outlining the difficulties.
“We want to have a smooth transaction, we want to reduce the risks between potential signing and closing,” Strobl said.
Raiffeisen booked net income of €661 million in the second quarter, more than the €484 million average estimate of analysts in a Bloomberg survey. It raised its guidance for 2024 net interest income in its core markets, excluding Russia and Belarus, to about €4.1 billion from about €4 billion.
(Updates with details on Russian restrictions from sixth, sale options in the 10th paragraph. An earlier version of this story corrected the previous management guidance.)
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