How European banks made big profits in Russia while promising to cut exposure

Raiffeisen Bank paid over €400 millions in taxes to Russia (Photo: Reuters)

In a four-fold increase from pre-war levels, major European banks operating in Russia paid around €800 million in taxes in 2023, according to a report.

These banks also reportedly raised their profits from their Russia operations to €3 billion.

The findings have been published in a report by British newspaper Financial Times. The surge in profits of European banks and taxes paid to Moscow runs afoul of their assurances to minimise their exposure to Russia.

Which banks have profited from Russia operations?

The FT reported that the following banks, biggest in terms of their assets in Russia, saw a four-fold surge in taxes paid: Austria’s Raiffeisen Bank International, Italy’s UniCredit ING and Intesa Sanpaolo, Germany Commerzbank and Deutsche Bank, and Hungary’s OTP.

Of these banks, Raiffeisen had the highest share of over €400 million, as per the report. The bank has the largest presence for any major European bank in Russia.

While these banks paid €200 million in 2021, the year before Russian President Vladimir Putin ordered the invasion of Ukraine, they paid €800 million in taxes in 2023, as per the report.

How these banks increased profits and taxes?

The taxes paid to Russia by these European banks have increased on account of their increased profits.

The profits of these banks have partially increased as interest rates in Russia have increased. Over the past one year, the Russian central bank has progressively hiked interest rates to 16%.

However, FT reported that the surge in profits is also attributed in part to the increased attractiveness of these banks in Russia. As Russian banks and financial institutions have been hit by Western sanctions, Russians wishing to stay connected financially with the West have turned to these European banks.

Despite increasing their profits, these banks cannot withdraw anything for their parent companies. In Russia, regulatory restrictions were imposed in 2022 that barred Russian subsidiaries of foreign enterprises from “unfriendly” Western country from paying out dividends.

“We can’t do anything with Russian deposits apart from keeping them with the central bank. So as interest rates went up, so did our profits,” said a senior executive at a European bank in Russia to FT.