When Frédéric Oudéa, chief executive of the French bank Société Générale, recently called for a “diplomatic solution” in the conflict between Russia and Ukraine, he was concerned not only about the fighting that has killed more than 5,500 people in Ukraine, but also about his business in Russia.
“We expect 2015 to be our most difficult year ever in Russia,” Oudéa said.
The fall of the ruble caused Société Générale last year to write down €525 million, or $598 million, of the value of its Russian subsidiary, Rosbank. As a result, Mr. Oudéa plans to reduce the bank’s workforce by 15 percent or 3,000 employees, after cutting 1,500 jobs last year.
The Russian economy has been in a downward spiral since the outbreak of the Ukrainian crisis a year ago. The sanctions from the West and the fall of the ruble have led to a recession. The Russian currency has lost about half of its value against the dollar, caused not just by the capital flight, but also by the drop in oil prices. The market value of Russia’s most important export commodity has been cut in half since the middle of June. In 2015, the economy is expected to shrink by 5 percent.
These developments have stung the Russian banking sector. Refinancing costs have soared, with a base interest rate of 15 percent. The loan business has collapsed under such high interest rates, and the number of non-performing loans is rising daily. And real income has dropped because of the dramatic increase in the price of consumer goods.