Western banks that have continued operations in Russia paid more than €800mn in taxes last year, marking a fourfold increase from pre-war levels, despite pledges to reduce their exposure following the full-scale invasion of Ukraine, the Financial Times reported on April 29.

The Financial Times' analysis revealed that the seven largest European banks in Russia – Raiffeisen Bank International, UniCredit, ING, Commerzbank, Deutsche Bank, Intesa Sanpaolo and OTP – collectively reported profits exceeding €3bn in 2023.

The significant tax contributions from these banks account for about 0.4% of all Russia’s expected non-energy budget revenues for 2024 and help sustain the Kremlin's efforts to finance the war in Ukraine. Over half of the tax payments were paid by Austria’s Raiffeisen Bank International (RBI), which is the biggest of the foreign banks in Russia and has been reluctant to leave, despite repeated promises to wind its Russian business down. The bank complains that it has been unable to find a buyer for its business.

RBI's profits in Russia surged to €1.8bn from 2021 to 2023, representing half of the Austrian group's total profit. RBI was an early entrant to the Russian market and pioneered trade finance deals after Russia began to emerge from the chaos caused by the collapse of the Soviet Union in 1991. Subsequently it built up a major western style retail banking business catering to the emerging middle class in the boom years in the noughties.

Its recent gains are primarily attributed to heightened interest rates and the constraints international sanctions have imposed on Russian banks, enhancing the competitiveness of Western banks within the country.

"RBI’s Russian profits more than tripled to €1.8bn between 2021 and 2023, accounting for half of the Austrian group’s total profit," the FT reported. Additionally, RBI also paid €47mn due to a windfall levy imposed by the Kremlin on certain companies last year.

RBI has faced criticism from the European Central Bank and the US Treasury Department for its failure to withdraw, and more recently has been threatened with punitive action if no progress is made. Although the bank has reduced its loan book in Russia by 56% since early 2022, recent job postings indicate plans for significant expansion of its client base in the region.

Other German and Hungarian banks such as Deutsche Bank, Commerzbank and OTP have substantially reduced their presence in Russia. Italy’s Intesa is nearing a complete exit, though it has not yet finalised the sale of its Russian business and UniCredit has opted not to comment on its operations.

US banks also remain financially active in Russia. Citigroup, despite shutting down its corporate and retail business, became the fourth-largest taxpayer among Western banks in Russia, earning $149mn and paying $53mn in taxes in 2023, according to data from the Kyiv School of Economics based on figures from the Russian central bank. JPMorgan, meanwhile, earned $35mn and paid $6.8mn in taxes while dealing with legal challenges from its former Russian partner, VTB.

The imposition of sanctions on most of the Russian financial sector, which includes denying access to the SWIFT international payment system, has inadvertently made international banks critical financial conduits between Moscow and the West. This role has significantly boosted RBI’s net fee and commission income in Russia, which jumped from €420mn in 2021 to €1.2bn in 2023.

RBI also has a subsidiary in Ukraine, where it plays a similar role and earns substantial fees, facilitating transfers of money in and out of the country.

A senior Russian banking executive commented on the situation, telling the FT: “It is not only in RBI’s interest to stay in Russia. The [Russian central bank] will do everything it can to not let them go because there are few non-sanctioned banks through which Russia can receive and send SWIFT payments.”

European banks increase profit and tax in Russia
Bank	Country	2021 Profit (€mn)	2023 Profit (€mn)	2021 Tax (€mn)	2023 Tax (€mn)
Raiffeisen Bank International	Austria	591	1,805	117	464
UniCredit	Italy	209	658	44	154
OTP	Hungary	128	338	26	90
Intesa Sanpaolo	Italy	7	138	2	27
ING Groep	Netherlands	3	151	-7	20
Commerzbank	Germany	15	51	3	8
Deutsche Bank	Germany	26	40	6	16
Source: Company filings, FT