(Bloomberg) -- Raiffeisen Bank International AG’s protracted efforts to extract cash from its lucrative Russian unit despite international sanctions against the country suffered another blow as regulators moved to accelerate the wind-down of the business.

In a rare escalation, the European Central Bank indicated it plans to order Raiffeisen to cut its Russian loan book by 65% until 2026, far more than what the Viennese lender had planned. Raiffeisen, which operates the largest foreign-owned bank in Russia, said in a statement Thursday that such a request may adversely impact options to sell the unit. 

The ECB’s pressure could dash any hopes by Raiffeisen to exit Russia with money in hand, a balancing act it has pursued for the past two years. The subsidiary accounted for about half of Raiffeisen’s pre-tax profit last year, but management have been unable to extract that cash due to limitations on cross-border cash flows. A complex deal aimed at repatriating capital from the Russian unit has come under US regulatory scrutiny.

The ECB’s move comes as Europe has grown increasingly frustrated in its attempts to effectively introduce restrictive measures against Russia and cut into the Kremlin’s ability to wage its war against Ukraine. The European Union has imposed sanctions on more than 400 entities — including banks, defense companies and media organizations – as well as 1,706 individuals, such as Russian President Vladimir Putin and Foreign Minister Sergei Lavrov. 

Raiffeisen has skirted sanctions against Russian individuals and companies with its focus on retail customers and serving Western businesses still operating in the country. Its deposits skyrocketed in 2022 as Russians flocked to one of the last Western banks still active in the country.

Cutting two thirds of the Russian unit’s loan book would make an elusive sale even more complicated, and may potentially attract a hostile response from Russian regulators. The subsidiary voluntarily reduced its loan volume by 30% in 2022 in the wake of Russia’s invasion of Ukraine, but has more recently stabilized operations.

Shares of Raiffeisen fell as much as 3.4% in Vienna before paring declines. They’re down more than 8% this year, the worst performer in a Bloomberg index of European banks and financial services companies.

Its Russian business is in the list of about a dozen of lenders that the country considers “systematically important” for its banking system. It works in accordance with local law and its operations are regulated by Russian central bank.

The government in Moscow has started to seize assets of companies or individuals from the countries that it considers unfriendly. A number of international holdings, including in transportation, energy and food industries has been taken over since then.

Raiffeisen Chief Executive Officer Johann Strobl has repeatedly said he can’t just quit the country from one day to the other, pointing to client relations and management’s fiduciary duties to shareholders. 

Some lenders, such as Societe Generale SA, have acted faster. The French firm sold its Russian unit within weeks of the start of Russia’s invasion of Ukraine, booking a loss of about €3 billion on the transaction.

While the ECB is monitoring Russia exposures of other European banks still active there, and has expressed unhappiness with some others as well, officials consider RBI the most problematic case, given the scale of its operations in the country, people familiar with the matter said.

A spokesperson for the ECB declined to comment.

Raiffeisen most recently tried to move some of the money stuck at its Russian business through a complex transaction that has attracted US regulatory scrutiny. That plan included the purchase of shares in Austrian construction company Strabag that were held not long ago by sanctioned businessman Oleg Deripaska.

Raiffeisen said it was “committed to achieving the deconsolidation of AO Raiffeisenbank, including via a sale of the unit.” 

--With assistance from Nicholas Comfort, Yuliya Fedorinova and Richard Bravo.

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