Austria May Raise Bank Capital Levels in Russia Recession

Austrian bank regulator FMA may raise capital requirements for Raiffeisen Bank International AG and UniCredit Bank Austria AG if Russia enters a recession due to the conflict with Ukraine.

“If the economic development in Russia deteriorates, that’s an additional risk,” Klaus Kumpfmueller, co-head of the Finanzmarktaufsicht regulator, told journalists in Alpbach, Austria today. “The economic development is immanent in our capital calculation and if there is a recession in Russia, more capital needs to be held.”

UniCredit and Raiffeisen are among the three biggest foreign-owned banks in Russia, and UniCredit is managing the business through its Vienna-based Bank Austria unit. The FMA is prescribing Austrian banks active in eastern Europe and Russia individually designed capital ratios that exceed the legal minimum under the Joint Risk Assessment and Decision process of European banking rules.

The FMA doesn’t publish its JRAD requirements for total capital. Milan-based UniCredit said in its 2013 annual report that it is still in discussions with the FMA about the requirement. Vienna-based Raiffeisen hasn’t published the JRAD requirement in its annual or six-month reports.

Raiffeisen said last week Russia remains its most profitable market and said it has no plans to reduce its presence there as the impact of sanctions against President Vladimir Putin’s government was “very low.” The bank has relied on Russia as its biggest profit generator in the past three years. For UniCredit, Russia is also still one of its “focus countries,” along with Turkey, Poland and the Czech Republic.

“Russia is a serious problem because it’s such a fundamental earnings generator,” FMA co-head Helmut Ettl said. “The good thing is that the refinancing is mostly locally, not via the parent. It’s very big as a profit generator, but at the end of the day it would be resolvable -- painful but resolvable -- because the business isn’t so closely tied together.”

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