Russia's state-controlled Sberbank plans to invest an additional 300 million euros ($396 million) in its Austrian subsidiary, Volksbank International (VBI), in 2012, according to April 24 media reports. The reports follow Sberbank Deputy Chairman Sergei Gorkov's April 19 announcement regarding a planned expansion in Central and Eastern Europe.
Sberbank, which essentially acts as an arm of the Kremlin, is expanding its financial assets in Central and Eastern Europe as Western European banks — which flocked to the region following the Soviet breakup — pull back due to the eurozone's sovereign debt crisis and the need to bolster their capital reserves. The strategy, part of Moscow's drive to expand its influence in the region, is not without risks.
Sberbank bought 100 percent of VBI in February for 505 million euros. VBI's subsidiary banks are among the top 10 financial institutions in terms of assets in Bosnia-Herzegovina, Slovakia, the Czech Republic and Croatia and are among the top 15 financial institutions in Hungary, Serbia and Slovenia.
The purchase stands out given Austria's dominant banking position in Central and Eastern Europe. After the Soviet collapse, Vienna sought to recreate its traditional sphere of influence in the region by expanding Austrian banks in Central and Eastern Europe. The subsequent financial crisis forced Austria to change its strategy to one of consolidating its presence in "healthy" countries and limiting its presence in the most problematic countries, especially those outside the European Union.
This has given Russia, which is flush with cash due to high oil prices, a chance to exploit the weakness of Western European banks. Moscow can now purchase banks with large operations in Central and Eastern European countries at attractive prices. This is part of Russia's general plan to pick up European assets — mainly banks and energy firms, followed by strategic assets like ports and airports — while they are cheap. It allows Moscow to rebuild its sphere of influence, giving it leverage in a region that has been increasingly involved with the West for two decades.
While acquiring assets can yield influence, the strategy could backfire if carried too far, especially in countries with poor relations with Russia. For instance, Poland already is seeking to strengthen its banking sector by encouraging the merger of local banks into larger, more fiscally healthy entities and by urging Polish companies to tap the home market for capital. Among other things, this is to prevent Russia from taking over the Polish banking sector.
Moreover, some banks operating in Central and Western Europe are in a delicate financial situation and must cope with a high number of nonperforming loans. Austrian banks serve as a cautionary tale for Russia. The average nonperforming loan ratio for Austrian banks operating in Central and Eastern Europe is 14.1 percent, almost twice as high as the ratio for banks operating in Austria. Even so, this did not deter Sberbank from going after VBI, which had a reputation as one of the most toxic Austrian banks in the region. Sberbank's move signals that Russia is ready to get more active in the region despite the associated risks, and even if the Europeans have been scared into looking elsewhere.