By Marc Jones
LONDON (Reuters) - The European Bank for Reconstruction and Development is to shut five of its seven offices in Russia next year, as the bank pursues a freeze on lending there since the 2014 Ukraine crisis.
The axe will fall on all but its Moscow and St Petersburg branches, highlighting the extent to which Western-led sanctions have shifted the development bank away from what was, for many years, its largest and most profitable markets.
Sources within the London-based EBRD told Reuters that the cuts had been on the cards for some time. A bank spokesman confirmed on Tuesday that a decision had now been made.
"We will be closing 5 small regional offices in Yekaterinburg, Krasnoyarsk, Rostov-on-Don, Vladivostok and Samara at the end of first quarter 2018," the EBRD's managing director for communications Jonathan Charles said.
While the move is likely to underscore the poor state of relations between the West and Russia - the EBRD's biggest shareholders are U.S., European and other G7 governments - the closures are likely to affect only a handful of EBRD staff.
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The bank had around 160 personnel in its seven offices before the 2014 Ukraine crisis. Back then it had around 10 billion euros in projects in Russia, from Volkswagen car plants to a long list of equity stakes in companies and banks.
Since then work has been reduced to tending to the bank's legacy Russia portfolio or to limited projects where Russian companies invest in other countries alongside the EBRD.
As a result roughly half of those staff have either moved elsewhere in the bank or left it altogether.
"I deeply regret that the EBRD lost Russia, it's largest and most profitable market," Russia's representative at the EBRD in London, Denis Morozov, told Reuters.
"It's also very sad that the Bank cannot any more deliver on its mandate and help to change Russia to a better place," adding that it had also lost experience and contacts built up over two decades of work in the country.
Russia's economy ministry also confirmed it had been informed of the closure plans.
The EBRD was created as the Cold War came to end in 1991, specifically to invest in former Soviet-bloc states and help them make the transition to market-based economies.
At the start of 2017 some EBRD officials had privately talked about the possibility of restarting some work with the private sector in Russia.
But these prospects evaporated shortly thereafter when the scandal over contact between members of U.S. President Donald Trump's team and Russian officials during last year's election campaign soured the international mood towards Moscow further.
Moscow then accused the EBRD of becoming a "tool" of western foreign policy in May this year after the governors of the lender to former communist Europe rejected its call to restart lending to Russia.
The EBRD still has a 3 billion euro portfolio of Russian investments but this continues to steadily shrink as firms there pay back their EBRD loans and the bank itself continues the normal process of selling down its equity stakes.
"Should our operational requirements in Russia change, we would be ready to re-examine our infrastructure and staffing requirements," EBRD spokesman Charles said.
(Reporting by Marc Jones; Editing by Richard Balmforth and Cynthia Osterman)