Raiffeisen Bank ups pay for Russia-based employees

Raiffeisen Bank, the largest western lender still operating in Russia, has experienced a doubling in staff costs at its Russia-based subsidiary in the past six months, amounting to a staggering €200 million increase. Despite mounting pressure to withdraw from the country, the Austrian bank continues to increase pay for its Russian staff, resulting in a notable rise in overall group staff costs by more than 20%.

The bank cited the pay increase as a consequence of higher salaries and social security costs, provisions for one-off payments, and an increase in headcount. Although the headcount at the division rose by less than 10%, the pay raise equates to approximately €22,000 per employee.

The Russian subsidiary’s profits have soared, rising by 9.6% to €867 million in the first half of the year, surpassing the record-beating profit achieved during the same period last year, which coincided with the beginning of the Ukrainian invasion.

Despite the lucrative returns from its Russian operations, Raiffeisen is under intense scrutiny from US authorities due to its exposure to Russia. The US Treasury Department has requested thousands of documents from the bank to ensure compliance with sanctions against Moscow.

In response to the increasing pressure, the bank has pledged to expedite plans to exit Russia and is actively considering two options: a sale and a spin-off of its Russian business. CEO Johann Strobl emphasised the bank’s commitment to reducing its business in Russia while pursuing these complex options.

However, critics remain skeptical of the bank’s intentions, accusing it of not being serious about winding down its Russian operations. Raiffeisen, which has a longstanding history in Russia and previously weathered political criticism, faces a challenging predicament as it explores avenues for an exit that would deliver value to shareholders.

Exiting Russia is not without hurdles, as there are limited viable options available, and repatriating the substantial profits generated by its Russian business remains unfeasible. The bank has already reduced its Russian loan book by over a third since the start of the war in Ukraine.

Earlier this year, Raiffeisen explored a potential “asset swap” with Russia’s Sberbank, which held around €400 million of assets stranded in Europe. However, intense political pressure prevented the proposal from materialising. Subsequent negotiations to sell its Russian arm to two Russian counterparties also face challenges due to political turbulence and increased government restrictions on western businesses.

As Raiffeisen navigates its path forward, it confronts a delicate balance between business profitability, geopolitical considerations, and shareholder interests. The bank’s decisions in the coming months will be closely watched by the industry and investors as it grapples with the complexities of its Russian operations.