Why are banks withdrawing from Eastern Europe

More and more banks are withdrawing from Eastern Europe for fear of being drawn into illegal financial transactions. This makes financial transactions more complex and expensive – with consequences for economies and countries.

aWhen it became known at the beginning of August that Austria’s Raiffeisen International Bank (RBI) was no longer making international money transfers to Belarus’ state-owned bank, it grabbed some international headlines. The state oppressed by its ruler, Alexander Lukashenko, is included in the sanctions lists of the European Union and the United States, and the regime in Minsk is under international monitoring. That is why the public quietly observed what happened: the departure of Western correspondent banks from Central, Southeast and Eastern Europe. Partial withdrawals from Deutsche Bank, Commerzbank, Citi or JP Morgan are an example for many other companies.

For the individual bank, lost business is often not relevant in general, but for affected countries, it is, as a new study by ZEW Mannheim economic research institute shows. Caroline Kirschenmann, a banking expert at ZEW, says countries where the number of correspondent banks has fallen sharply have suffered greater economic losses. “Here the export growth rate was on average six to eight percentage points lower than the countries from which correspondent banks hardly pulled out.” Examples include Latvia, Estonia, Moldova, North Macedonia and Montenegro. Geographical distance from important trading partners plays a role here – as does money laundering and corruption.