(Brussels) The European Central Bank noted on Monday the “bankruptcy or probable bankruptcy” of the European subsidiary of the Russian bank Sberbank, among the largest in the country, because of “significant” withdrawals of deposits due to the conflict in Ukraine and sanctions imposed by Western countries.
Posted at 4:08 p.m.
Updated at 8:11 p.m.
Sberbank Europe AG, domiciled in Austria, and its subsidiaries in Croatia and Slovenia have “experienced significant outflows of deposits due to the impact of geopolitical tensions on their reputation”, explains the banking supervision body of the ECB in a press release, considering that “in the near future, the bank may not be able to pay its debts or other commitments as they fall due”.
The withdrawals have led to a “deterioration of liquidity” of the bank and “there is no means available” which gives a “realistic chance” of flowing back the coffers of the institution, continues the ECB.
In the process, the Austrian regulator FMA imposed a “moratorium” on the European subsidiary, meaning that it cannot carry out “any withdrawal, transfer or other transaction” at least until March 2. Under European regulations, retail deposits are guaranteed up to €100,000.
The two largest Russian banks, Sberbank and VTB Bank, have been targeted in particular since Thursday by heavy American sanctions, aimed at largely limiting their international transactions. The sanctions targeting the Russian banking system have since been reinforced with, in particular, the announcement on Saturday of the exclusion of certain institutes from the Swift system.
Sberbank Europe AG is 100% owned by the bank’s Russian parent company. It also has subsidiaries in Bosnia and Herzegovina, the Czech Republic, Hungary and Serbia, which would be affected by bankruptcy, but do not come under the jurisdiction of the ECB. The European supervisor specifies that he has “coordinated with the national authorities” in these countries.
Earlier on Sunday, European foreign ministers agreed, in agreement with the G7 powers, to block the transactions of the Russian Central Bank, announced the head of EU diplomacy Josep Borrell.
The political agreement of the ministers paves the way for the implementation of the measure by the opening of the markets on Monday, he indicated to the press, estimating that “more than half of the reserves” of the institution, placed in banks of G7 countries would be paralyzed.
The members of the G7 and the EU had agreed on Saturday to block the operations of the Russian Central Bank on their soil, which amounts to drastically restricting its ability to convert its foreign exchange reserves (foreign currencies, sovereign bonds denominated in Western currencies…).
The objective is to prevent Moscow from using it to finance the conflict in Ukraine and counter the impact of Western sanctions on the Russian economy.
The Central Bank’s reserves, which notably include assets in dollars, euros and yuan, but also gold reserves, amount to around 460 billion dollars according to the financial agency Bloomberg.
After this political green light from European ministers, the proposal must “be formally adopted by a written procedure to which the Member States must respond by 4 a.m., in order to prevent the Central Bank, when it reopens on Monday, from access its localized reserves in markets in the EU, UK and US,” a European source explained.
“We cannot block Central Bank reserves located in Moscow or China. Over the past year, Russia […] prepared for the current situation by decreasing its reserves in dollars” to increase those in yuan, rubles and gold, specified Mr. Borrell.
On the other hand, the ministers of the 27 have not yet reached an agreement to exclude Russian financial establishments from the Swift international interbank messaging system, an essential cog in the wheel of global finance which ensures the transit of payment orders and transfers of funds between banks.
The European Commission had indicated on Saturday that it would propose to member states to block the access of “a certain number of banks” to Swift, but states are concerned about the impact of the measure.
“It has been discussed, but at the moment there is not the necessary consensus. We will continue to work on it […] including at the international level, because such a measure requires the coordination of several countries”, observed Josep Borrell.
According to a European source, the Commission is still in discussions with London and Washington to identify the Russian banks that would be targeted, and proposals should be finalized on Monday.
According to the site of the Russian national association Rosswift, Russia would be the second country after the United States in number of users with some 300 Russian banks and institutions members of the system. More than half of Russian credit organizations are represented in Swift.
Swift is a company incorporated under Belgian law, only subject to the sanctions adopted by the EU. In 2012, it had excluded from its system several Iranian banks following a decision of the 27.