Exclusive-ECB heightens scrutiny of banks with Russian ties – sources

© Reuters. FILE PHOTO: European Central Bank headquarters building in Frankfurt, Germany, March 7, 2018. REUTERS/Ralph Orlowski

By Francesco Canepa and Alexandra Schwarz-Goerlich

FRANKFURT (Reuters) – The European Central Bank has put banks with close ties to Russia, such as Austria’s Raiffeisen Bank International and the European arm of VTB, under close observation following sweeping financial sanctions by the West that have already pushed one lender over the edge, two sources told Reuters.

The ECB’s measures include that those banks report their liquidity more frequently and update the central bank’s supervisors in Frankfurt and Vienna on the impact of the sanctions on their assets and operations in Russia and Ukraine, the sources said.

Supervisors heightened their scrutiny when Russia invaded Ukraine last week and were in daily contacts with the banks, the sources added.

Raiffeisen Bank International’s Chief Executive Johann Strobl said in a statement to Reuters that RBI’s Russian subsidiary “had a very strong liquidity position and (was) recording inflows”. The bank declined to comment further.

The ECB declined to comment and VTB did not respond to a request for comment.

The United States, European Union and Britain have taken unprecedented steps to isolate Russia’s economy and financial system, including sanctioning its central bank and excluding some of its lenders from the SWIFT international payments system, used for trillions’ of dollars of transactions.

This had led to a run on bank deposits in Russia and on the European arm of Sberbank, which was declared as failing by the ECB earlier on Monday.

Shares in RBI, one of 115 major banks that the ECB supervises directly, fell 14% to 14.67 euros in Vienna, having almost halved in value since Feb 10.

The lender, which focuses on Eastern Europe and is part of Raiffeisen Banking Group Austria, had 11.5% of its loan book in Russia last year and valued its stake there at 2.4 billion euros, or 18% of its consolidated equity. It also owns smaller banks in Ukraine and Belarus.

VTB Bank Europe is a unit of Russia’s second-largest bank which focuses on European companies which want to settle transactions in Russia. It is based in Germany, where it is supervised by local authorities and also takes deposits.

On Monday, the Russian central bank sold 3.04 trillion roubles ($28.3 billion) at a “fine-tuning” repo auction with no limit to help banks with their liquidity.

It also more than doubled its key policy rate on Monday and introduced some capital controls.