Sberbank’s Austrian unit is first bank to fail after sanctions on Moscow

The Austrian unit of Sberbank has been pushed into failure by far-reaching sanctions on Russia, becoming the first banking victim of the measures after they caused a run on the bank and left its parent unable to help.

Following the Austrian unit’s collapse, which came as other parts of Sberbank’s EU operations were offloaded in emergency sales to local rivals or wound down, the state-owned lender said it was withdrawing entirely from Europe.

The EU authority responsible for restructuring failing banks said the demise of the most troubled European units of Sberbank, Russia’s biggest lender, had come at “lightning speed”.

Sberbank Europe has about 800,000 retail and corporate customers in central and eastern Europe with almost 4,000 staff.

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The bank said in a statement on Wednesday that its EU subsidiaries had “faced an exceptional outflow of funds and a number of safety concerns regarding its employees and offices”, adding that it “cannot provide liquidity” to its European operations due to a ban by Russia’s central bank on moving funds abroad.

“In light of the current situation Sberbank has taken the decision to withdraw from the European market,” it said.

Late on Tuesday the EU’s Single Resolution Board announced that the Austrian subsidiary was going into insolvency while its Croatian and Slovenian units had been transferred to new owners.

The SRB had already suspended most EU activities of the state-owned Russian bank this week, after customers rushed to withdraw money in response to western sanctions. “We had been monitoring the situation for some time,” said Elka König, the SRB chair. “But the failing of this institution came at lightning speed.

“It’s not an insolvency due to negative equity, it’s an insolvency due to lack of liquidity,” Ms König said.

Repay deposits

She added that she was confident the Austrian subsidiary’s assets were sufficient to repay its €1 billion of deposits, but it was unclear if they would cover all liabilities. At the end of last year Sberbank Europe had €13.6 billion of assets.

Many of the 35,000 private depositors at the Austrian subsidiary of Sberbank are based in Germany but are covered by Austria's deposit guarantee scheme. Sberbank's German business will be part of the Austrian insolvency, but its Swiss operation continues to operate.

The SRB said it had sold all shares of Sberbank’s Croatian subsidiary to Hrvatska Poštanska Banka, while its Slovenian unit was sold to Nova Ljubljanska Banka. König said the two banks had been sold for a “small positive sum” and would open on Wednesday.

“The SRB has also decided that resolution is not necessary for the Austrian parent of Sberbank Europe AG,” the SRB said. “Insolvency procedures will be carried out according to national law. Eligible deposits up to €100,000 are protected by the Austrian deposit guarantee system.”

Ms König said Sberbank's two other EU subsidiaries in the Czech Republic and Hungary were being handled by national authorities. Its Czech unit has been put in insolvency and its Hungarian operation has been frozen pending a final decision, she said.

When asked if other Russian banks with operations in Europe – notably VTB and Gazprombank – could face similar problems, Ms König said the euro zone financial system was stable “for the time being” but “clearly banks that have a Russian ownership are under stress”.

Taken control

It is only the second time the SRB has taken control of a troubled bank. It was created in 2015 as a pan-European authority with powers to impose losses on shareholders and junior bondholders of failing lenders in an attempt to avoid government bailouts in the sector.

The last time the SRB took control of a bank via a formal resolution process was when it orchestrated the sale of Spain’s Banco Popular to its rival Banco Santander for €1 in 2017.

Sberbank bank established its European subsidiary when it acquired Austria’s Volksbank International in 2012.

Sberbank Direct, its online banking operation, had been seeking to expand its deposit base by offering German savers interest rates of up 1.5 per cent on their money – much higher than the near-zero rates offered by most domestic lenders.

The Russian bank last year agreed to sell its operations in Bosnia and Herzegovina, Croatia, Hungary, Serbia and Slovenia to a consortium of banks led by Slovenia's AIK Banka. But Ms König said this deal had "already come to a halt" and would have been impossible to complete anyway due to western sanctions. – Copyright The Financial Times Limited 2022