At the end of 2023, three foreign bank representative offices in the Russian Federation were closed

The rate of closure of representative offices of foreign banks in the Russian Federation in 2023 has decreased, but credit institutions from unfriendly jurisdictions continue the process of exiting the market. Experts admit that even such a “light format” of presence – the functionality of a representative office is much narrower than, for example, the form of a subsidiary bank or branch – carries risks of secondary sanctions. At the same time, new players are appearing on the market and are not afraid to start a business in Russia.

At the end of 2023, three foreign bank representative offices in the Russian Federation were closed, according to data from the Central Bank register, which Kommersant reviewed. In 2022, when severe sanctions pressure began on the country’s financial sector, ten foreign representative offices stopped working in Russia. There are currently 25 offices of foreign banks. According to the latest archival data from the Central Bank website, in December 2015 there were 66 of them.

In 2023, the representative office of the German bank Aareal, which existed for 15 years, ceased to operate in the Russian Federation; a representative office of the Cyprus AstroBank, which has been operating since 2018, as well as one of the oldest representative offices of the Italian group Intesa Sanpaolo on the market. The latter’s office has been listed in the register since 1999, but the bank, at its own request (then still called Banca Commerciale Italiana), received permission to open a representative office in Moscow on July 12, 1973. This was the first representative office of a foreign bank in the USSR.

But if the Intesa group simply did not renew the accreditation of the representative office, then the rest completed their work ahead of schedule. For example, Aareal Bank extended the accreditation of the Central Bank in April 2023, until May 6, 2026, and AstroBank could operate until August 29, 2024. Already in 2024, the Swiss Cramer & Cie left the Central Bank register – it completed its work less than a month before the expiration of accreditation.

At the same time, in 2023, a new foreign bank appeared in the Central Bank register and opened its representative office in the Russian Federation. This is one of the largest Aiyl banks in Kyrgyzstan.

The closure of representative offices may be a consequence of decreased interaction between Russian companies and organizations registered in other countries, the risk of secondary sanctions and a drop in the intensity of cross-border transactions, experts believe. “The peak of closures occurred in 2022 – then everything began, and, in general, there were no longer any uncertainties regarding the geopolitical situation,” notes managing director of the Expert RA rating agency Yuri Belikov. “Some could suspend the decision simply based on that the representative office does not carry out operations and, essentially, does not influence anything.”

At the same time, according to the Central Bank register, 7 out of 25 existing representative offices have accreditation periods expiring in 2024; whether they will renew them is still unclear. According to the head of the ACRA financial institutions ratings group Valery Pivny, representative offices do not have the right to carry out banking activities. They are not even legal entities, adds Denis Primakov, head of the Sanctions Law and Compliance practice at AB KIAP.

Representative offices work to popularize the brand, establish business contacts, and advertise, adds Mr. Belikov. “They can, to some extent, mediate the relationship between clients and the bank, but it will still be a cross-border relationship – in such cases, service agreements will be concluded with the head office of a foreign bank, and the representative office will only simplify communication and mediate document flow,” he says.

The right to open branches in the Russian Federation, which is planned to be granted to foreign banks in the future, will not fundamentally change the situation, experts say. For branches, only a limited list of operations will be possible (opening and maintaining accounts, making money transfers, collecting funds, buying and selling foreign currency), and we are talking only about organizations from friendly jurisdictions.

The project, which provides for lifting the ban on foreign banks opening branches in Russia, was published by the Ministry of Finance in the summer of 2023. In the fall, Deputy Chairman of the Central Bank Alexei Guznov said that the main work on the bill could begin in 2024.

Olga Sherunkova