The European Central Bank (ECB) is on the verge of instructing Italy’s UniCredit to reduce its business dealings with Russia, according to two sources familiar with the matter. This move comes as the regulator intensifies efforts to sever European financial links with Moscow.
The demands placed on UniCredit, the second-largest European bank in Russia, are expected to mirror those made to Austria’s Raiffeisen Bank International (RBI), the largest Western bank operating in Russia, as indicated by the sources who spoke to Reuters on the condition of anonymity due to the sensitivity of the issue.
The ECB and UniCredit have both declined to comment on the matter. RBI, however, disclosed on Thursday that the ECB intends to require it to decrease lending activities in Russia and restrict payments within a specified timeframe.
After extensive deliberations spanning months, the ECB is preparing to issue a legally binding directive to UniCredit, marking a significant escalation in efforts to scale back its Russian operations, according to the sources. This step precedes the possibility of the ECB imposing penalties, such as fines.
A formal warning from the ECB to UniCredit would afford the Italian bank one last opportunity to avert enforcement procedures that could result in sanctions, another source familiar with the situation revealed.
European regulators are increasing pressure on banks operating in Russia amid the ongoing conflict, which has persisted for two years since Russia’s invasion of Ukraine.
Western nations have been tightening sanctions on Russia, with the Group of Seven (G7) industrial democracies exploring avenues to utilize frozen Russian sovereign assets to support Ukraine.
Despite regulatory scrutiny, two major banks in the region, RBI and UniCredit, continue to conduct business in Russia, a matter also drawing attention from authorities in the United States, according to informed sources cited by Reuters. Both banks have maintained a presence in Russia since the dissolution of the Soviet Union over three decades ago.
Following the Reuters report, shares in UniCredit experienced a slight decline and were last down 0.9%, underperforming the broader market.
UniCredit’s CEO, Andrea Orcel, reaffirmed in February that the bank’s strategy concerning Russia remains unchanged, emphasizing ongoing efforts to reduce its exposure to the region.
The bank’s Russian unit reported a pre-tax profit of 890 million euros in 2023, accounting for approximately 7.7% of the group’s total, compared to 210 million euros in 2021.
Despite a significant reduction in loans and staff, the unit’s revenues increased by 17% annually at constant currencies, attributed to rising bank fees.
The ECB’s concerns about the slow progress in downsizing business in Russia were highlighted by Andrea Enria, the former chief of the ECB’s supervisory arm, in June.
Enria emphasized the need for banks to expedite their exit strategies and provide transparent reports to management bodies and the ECB Banking Supervision.
The ECB’s next step, indicative of continued insufficient progress, underscores the regulator’s readiness to impose binding orders on banks operating in Russia. RBI, according to a source familiar with the ECB’s perspective, has missed several deadlines set by the ECB.
Leading governance adviser Glass Lewis has cautioned UniCredit shareholders about the risks associated with the bank’s ongoing operations in Russia, warning of potential reputational damage that could affect shareholder value.
