Financial Services

Irish-based bank with most loans to Russian clients cuts exposure by 80%

Dublin-based Intesa Sanpaolo unit slashes size of Russia business

Intesa Sanpaolo, Italy’s largest bank by assets, has been reducing its exposure to Russia since the outset of the Ukraine war.

Joe Brennan
Wed May 1 2024 - 06:00

The most exposed Irish-based bank to Russia, Intesa Sanpaolo Bank Ireland, reduced loans to clients from that country by close to 80 per cent in the past two years as a result of the war in Ukraine.

The Dublin-based corporate lender’s loans to Russian companies stood at €150.9 million in December, down from €704 million at the end of 2021, shortly before Vladimir Putin ordered the invasion of Ukraine, its latest annual financial statement filed with the Companies Registration Officer (CRO) shows.

Russian clients accounted for almost half of all of the Irish bank’s loans before the war. They made up 19 per cent of Intesa Sanpaolo Bank Ireland’s €790 million portfolio at the end of last year. The accelerated reduction of Russian exposures saw its total loan book shrink by 32 per cent in 2023.

“The strategy of de-risking of Russian exposures which began in 2022 continued into 2023,” Intesa Sanpaolo Bank Ireland said in the report, adding that it expects to reduce its Russian loans further this year. The Dublin-based but Italian-owned bank’s origins can be traced back to the establishment of Dublin’s International Financial Services Centre (IFSC) in 1987.

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The Irish Times reported last year that Intesa Sanpaolo Bank Ireland was alone among the domestic and overseas-owned banks regulated by the Central Bank to report material exposures to Russia since the outset of the Ukraine war. There are 16 licensed banks in Ireland.

The wider Intesa Sanpaolo group, Italy’s largest banking group with almost €965 billion of assets, has been seeking to become a bank considered to have zero Russian exposure.

The overall group’s total loans to Russian customers halved last year to €872 million, including almost €200 million in its Banca Intesa Russian unit. Its net exposures are lower.

Intesa Sanpaolo Bank Ireland set aside €17.3 million to cover expected losses on Russian loans last year, having booked a €151.4 million impairment charge in 2022, as western sanctions weighed on local companies and the wider economy.

The Irish unit swung into a net profit of €107.7 million from a loss of €143.3 million for the previous year, as net interest income jumped 143 per cent to €55.3 million amid higher interest rates and as the company released some €76.8 million of loan loss provisions.

The Italian bank is working to sell its unit in Russia, which stopped doing fresh business at the outset of the war, to local management. However, it has so far been prevented from closing the sale because it has not received all necessary local authorisations, despite Mr Putin giving the deal his approval in September.

The group has written down the entire equity value of its Russian unit since and reduced its cross-border exposure by 84 per cent between mid-2022 and the end of last year, bringing it down to 0.1 per cent of the group’s total customers.

Meanwhile, the Financial Times reported this week that European banks paid more than €800 million in taxes to the Russian government last year, marking a fourfold increase from pre-war levels, despite pledges to reduce their exposure.

The newspaper listed Raiffeisen Bank International, UniCredit, ING, Commerzbank, Deutsche Bank, Intesa Sanpaolo and OTP as collectively having reported profits exceeding €3 billion in Russia last year.

In the case of Intesa Sanpaolo’s unit, the €138 million profit was driven by idle cash being stored at the Russian central bank, where deposit rates are 16 per cent. The parent group has not consolidated the Russian unit’s profit since 2022.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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