Chinese banks have reportedly reduced their assets in Russia as sanctions against Moscow over President Vladimir Putin‘s full-scale invasion of Ukraine continue to complicate trade between the economic allies.
Russian business outlet Frank Media reported that in the second quarter of 2024, Bank of China decreased its assets in Russia by 37 percent, to 355.9 billion rubles ($3.9 billion).
Industrial and Commercial Bank of China cut its assets by 27 percent, to 462.4 billion rubles ($5.1 billion), amid “worsening problems with payments, according to their turnover sheet,” the outlet said. Newsweek has contacted the banks for comment.
This illustrative image shows a Russian ruble coin and a Chinese yuan banknote. Chinese banks in Russia are cutting their assets over fears of secondary sanctions.
KIRILL KUDRYAVTSEV/Getty Images
Two smaller institutions—China Construction Bank and China Agricultural Bank— increased their assets in Russia by 27 percent and 9 percent, respectively. However, Frank Media said, Chinese banks were slowing down business growth in Russia amid “protracted difficulties with settlements” between the countries.
Pavel Bazhanov, a Russian lawyer who provides legal support for Russian businesses in China and the wider region, told Newsweek that Chinese banks were stepping up compliance and refusing to process more Russian-related payments.
“Sometimes Russian banks, on behalf of their clients, in advance check with Chinese banks whether payments can be made for any particular client or transaction,” he said.
“However, it is still doable to make payments in Russia-China trade through Chinese banks and other channels, if the payments aren’t related to any sanctioned goods or persons,” he added.
Putin has boasted about soaring commerce with Beijing, which has helped prop up a Russian economy buffeted by Western-led sanctions—with bilateral trade between the allies hitting record levels since the war started in 2022.
While Putin may have touted a pivot away from the Western-led global financial system, Chinese banks are becoming increasingly wary of doing business with Russia, taking steps to avoid U.S. secondary sanctions and delaying and rejecting payments from Russia.
Difficulties with settlements began at the end of 2023 after an executive order by U.S. President Joe Biden threatened to deprive Chinese institutions access to the U.S. financial system over their involvement in trade linked to Russia’s military industry.
This year, Chinese banks began to refuse to make payments for sanctioned Russian organizations. In May, the Russian division of the Bank of China stopped processing yuan payments with Russian banks sanctioned by the U.S., while the Industrial and Commercial Bank of China, China CITIC Bank and most other Chinese lenders have made similar moves.
In June, sanctions were imposed against the Moscow Exchange, which led to the suspension of foreign trade settlements in dollars and euros.
Meanwhile, in August, Russian media quoted traders as saying 98 percent of Chinese banks were rejecting yuan-denominated transactions from Russia. Merchants are having to use intermediaries, resulting in more costly transactions due to commissions.
