US embassy cable - 05MINSK1177

C O N F I D E N T I A L SECTION 01 OF 02 MINSK 001177 
 
SIPDIS 
 
SIPDIS 
 
DEPT PLEASE PASS TO USTR 
 
E.O. 12958: DECL: 09/27/15 
TAGS: ECON, EINV, PGOV, BO 
SUBJECT: Largest Private Bank Offers Foreign Policy Advice 
 
Ref: Minsk 1146 
 
1. (SBU) Summary:  The chairman of the Austrian holding 
company that owns Priorbank, the largest and most 
internationally recognized private bank in Belarus, 
recently stated his company has been seeking a change in EU 
policy vis-Q-vis Belarus.  Dr. Herbert Stepic, the Chairman 
of Raiffeisen International Bank-Holding AG, told Pol/Econ 
Chief the most effective way of promoting political and 
economic reform in Belarus is to work with President 
Lukashenko, "not to back him into a corner."  Stepic said 
he will rely on his close contacts in the European 
Commission and the Austrian government to help steer the EU 
on a new course, particularly when the Austrians take over 
the EU presidency in January 2006.  End Summary. 
 
Priorbank Recognized For Outstanding Performance 
--------------------------------------------- --- 
 
2.  (U) On September 13, The Banker, a prominent 
publication of the Financial Times group, gave the 2005 
award for best bank in Belarus to Priorbank, the country's 
largest private bank.  The bank has won the award three 
years in a row, and the chairman of the holding company 
that owns Priorbank, Austria's Raiffeisen International 
Bank-Holding, organized an event on September 14 to 
celebrate the bank's success in Belarus.  Raiffeisen 
Chairman Dr. Stepic told a large crowd of high-ranking GOB 
officials, local business leaders, and diplomats that 
Priorbank had much to be proud of: profits reached nearly 
USD 22 million from January to August; the bank ranks third 
among Belarus' banks in terms of capital volume; it has 
more than 1,800 employees, 42 branches and outlets, and 
approximately 510,000 clients.  Raiffeisen has enjoyed 
similar success with its banks in other Central and Eastern 
European countries. 
 
 
Raiffeisen Chairman Sees Himself As Goodwill Ambassador 
--------------------------------------------- ---------- 
 
3. (U) Stepic stressed throughout his speech that the 
proper course for EU countries is to build stronger 
economic bridges in Belarus, much like his company has.  He 
suggested that Belarus has yet to be discussed "positively" 
within the EU, and it was part of his company's mission to 
change this tendency.  Stepic announced that when the 
Austrian government takes over the EU presidency in January 
2006, he would call upon his good Austrian friend Benito 
Ferrero-Walder, the European Commissioner responsible for 
Belarus, and upon his close contacts in the Austrian 
government to develop a more conciliatory political and 
economic relationship with the Lukashenko regime.  Stepic 
briefly turned his attention to the GOB by noting the 
government could do more to create a more attractive 
business environment.  The Raiffeisen chairman concluded 
his public remarks by disclosing that he envisioned himself 
as an ambassador between the EU and the GOB, encouraging 
both sides to move towards the middle. 
 
4.  (SBU) Following his remarks, Stepic told Pol/Econ Chief 
he thought it was counterproductive to back President 
Lukashenko into a corner, and he noted the EU's policy was 
doing just that.  He maintained that his vast experience in 
the area has led him to the conclusion that strengthening 
economic ties and de-emphasizing the negative aspects of an 
oppressive regime is a more effective policy for 
encouraging political and economic change.  He said he was 
committed to improving the image of Belarus in EU political 
and business circles. 
 
How Does Priorbank Remain Private? 
---------------------------------- 
 
5.  (SBU) Raiffeisen represents the largest shareholder of 
Priorbank, controlling 61 percent of the stock, and the 
European Bank for Reconstruction and Development (EBRD) is 
the second largest shareholder with 14 percent equity. 
When asked about Raiffeisen's strategy for preventing the 
GOB from expropriating Priorbank (via the Golden Share 
policy), Stepic told Pol/Econ Chief the government accepted 
Raiffeisen's unconditional term for taking ownership of the 
bank - no GOB pressure.  Stepic stated Belarus' central 
bank chairman accepted the condition and there have been no 
 
MINSK 00001177  002 OF 002 
 
 
problems to date.  (Comment: Post knows that the GOB has 
pressured Priorbank to give a loan to at least one company, 
and there are rumors of other forced loans.  However, 
Priorbank has taken all the necessary steps to ensure the 
loans are profitable investments.)  Later in the 
conversation, he conceded Priorbank has had to follow the 
central bank's "suggestion" that the bank concentrates its 
activities in individual accounts and not in state-owned 
entities, but Stepic maintained this arrangement was 
mutually profitable for his company and the GOB. 
 
 
Comment 
------- 
 
6.  (SBU) The future appears bright for Priorbank.  Without 
question, it is an impressive banking institution, 
controlled by an impressive Western holding company. 
However, part of the bank's success has to do with 
Raiffeisen's willingness to play by President Lukashenko's 
rules.  Raiffeisen Chairman Stepic's unambiguous and public 
support for stronger economic and political ties between 
Belarus and the EU has certainly earned him brownie points 
with the regime.  Accordingly, Stepic seemed quite sure of 
his company's ability to keep the GOB from interfering too 
much in Priorbank's operations.  Although he recognized the 
efforts of other private banks - such as those of Djem Bank 
(reftel) - to keep the regime at arm's length ultimately 
failed, Stepic suggested the fate of his bank would be 
different. 
 
7.  (C) There is probably more to the Raiffeisen-GOB 
relationship than Stepic was willing to admit.  Rumors 
abound that Priorbank may act as the regime's bank to the 
outside world and may be involved in handling the personal 
accounts of Lukashenko and other regime friends.  But so 
far there has never been found proof of such activities. 
 
KROL