The number of employees combined at the five European Union banks with the largest Russia operations decreased by a mere 3% while earnings have somewhat tripled.
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The European Central Bank is reflected in the river Main in Frankfurt, Germany, on March 21, 2024. (AP)
It’s becoming a difficult task for banks in the European Union to break ties with Russia over the war in Ukraine, according to a report by Bloomberg, which states that the number of employees combined at the five European Union banks with the largest Russia operations has decreased by a mere 3% while earnings have somewhat tripled, due to the hefty interest rates accumulated on their cash stuck in the country.
A concern for the involved banks is that staying in Russia brings the risks of being subject to US sanctions and fines, as confirmed by an anonymous source familiar with the matter.
Meanwhile, Claudia Buch, the central bank of Europe’s top oversight official, told euro-zone finance ministers on May 13 that the watchdog has requested all banks with hefty amounts in Russia “to speed up their de-risking efforts by setting a clear road map for downsizing and exiting.”
Western sanctions, which restrict companies’ scope of business in Russia, coupled with local rules and taxes on sales, make it a tough job to get money out of the country since subsidiaries of foreign banks in Russia must conform to local regulations, which may go against the ECB’s pressure on the parent company.
This comes almost two months after EU leaders failed to reach an agreement on Russia’s frozen assets, which they intend to funnel to Ukraine and have directed authorities to continue working on the matter.
Read more: Russian economy immune to sanctions: The Economist
According to the document, the European Council assessed progress on the next tangible measures toward transferring exceptional profits from Russia’s frozen assets to Ukraine’s advantage, including the prospect of supporting military help.
In fear of retaliation, the European External Action Service (EEAS) called on Russia this month to overturn its decision regarding the transfer of subsidiaries belonging to German and Italian companies to Gazprom’s management, despite the EU wanting to use Russia’s frozen funds as if they were their own.
Russian President Vladimir Putin signed a decree mandating the transfer of Russian subsidiaries of Italy’s Ariston and Germany’s BSH Hausgeraete to the temporary management of Gazprom Household Systems, a subsidiary of the Gazprom group.
Although Russia has been taking drastic countermeasures since the sanctions started befalling it, the EU possibly only realized that its sanctions were backfiring mere months ago.
At the close of February, EU member nations united to endorse a 13th iteration of sanctions against Russia, marking a continued effort to attempt to contain Russia.
EU officials have justified these sanctions as a strategic move to disrupt the supply chain for military-related products, targeting several foreign companies from third countries allegedly aiding Russia in circumventing EU measures.
A Modern Diplomacy report revealed that doubts linger regarding the efficacy of these sanctions, with Western acknowledgment of their limited impact on the Russian economy over the past two years. Notably, German Bundestag member Matthias Moosdorf underscored that “in Russia itself, they strengthen the mentality of a ‘besieged fortress’. The actual costs of sanctions for the EU have already exceeded €500 million.”
Read next: IMF warns of ramifications of Russian asset seizure
