Commerzbank Pressed by ECB to Reduce Risks at Russian Business

Commerzbank AG is among banks that have been told by their top supervisor to cut risk related to its business in Russia, where the German lender continues to have a sizable presence.

(Bloomberg) — Commerzbank AG is among banks that have been told by their top supervisor to cut risk related to its business in Russia, where the German lender continues to have a sizable presence.

The European Central Bank urged the firm in recent months to set aside more money for potential losses incurred in the country, people familiar with the matter said, asking for anonymity in discussing internal information.

Commerzbank said last month that it cut its Russian “net exposure” by 60% from February 2022 to the end of the year. It said that the direct impact from Russia accounts for more than 40% of the loan provisions it took last year and that it would continue to reduce exposure.

Commerzbank’s Russian unit “operates within the legal and regulatory requirements,” a spokesperson for the bank said by email. “We only process existing business with our German and international clients. We will continuously adapt our business strategy and risk assessment to the current situation.”

A representative for the ECB declined to comment.

Commerzbank is among a group of European lenders that have been slow to retreat from Russia after that country’s invasion of Ukraine. Some, such as Raiffeisen Bank International AG and UniCredit SpA, have seen their capital requirements raised as the regulator seeks to insure they can withstand significant capital hits, for example if they need to write off their business in Russia entirely. 

It wasn’t clear whether the steps take by Commerzbank were enough to satisfy the regulator. The ECB, which adjusts its requirements every year, kept the bar for Commerzbank stable this year.

“We are putting all our efforts and pressure to make sure that banks actively manage the risks” from their Russian operations, ECB banking supervision head Andrea Enria said last month. “Any opportunity for the banks to further reduce or exit from that type of business would be something that we would view favorably from the supervisory perspective.”

Enria acknowledged it has become difficult for other banks to follow the example set by Societe Generale SA of a complete exit, saying Russia’s attitude toward allowing banks to sell their local units is “a little more hostile” now. He also commended efforts by banks to separate their Russian operations from the rest of bank.

Commerzbank said last month that it cut its Russia exposure to 744 million euros as of the end of last year. In addition, its local unit holds ruble-denominated deposits worth about 800 million euros at the Russian Central Bank. 

The German lender has made technical preparations to immediately remove its unit in the country from its group IT systems should that become necessary, the people said now. 

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