Chinese lenders provide billions to Russian banks following Western sanctions

Chinese lenders extended billions of dollars in loans to Russian banks during the first year after Moscow invaded Ukraine.

Four of China’s largest banks have taken steps to promote the renminbi, an alternative currency to the US dollar.

According to the Kyiv School of Economics’ latest analysis of official data for the Financial Times, China’s exposure in Russia’s financial sector quadrupled between the end of last year and the end of this year.

The lenders replaced western banks that were under intense pressure by regulators and politicians of their home countries in order to leave Russia while international sanctions made it much more difficult to do business.

According to data from the Russian central bank, the Industrial and Commercial Bank of China (ICBC), Bank of China and China Construction Bank increased their combined exposure in Russia between $2.2bn and $9.7bn over the 14-month period ending March. ICBC and Bank of China accounted for $8.8bn of assets.

In the same time period, Austrian Raiffeisen Bank, the foreign bank that has the largest exposure to Russia, increased its assets by over 40%, from 20.5bn to 29.2bn.

Raiffeisen said that it was looking for ways to leave the country. It has also reduced its assets from $25.5bn in March.

The move by Chinese banks is part of a change by Russia , to adopt the Renminbi as a reserve rather than the US Dollar or Euro.

The sanctions are working, as Andrii Onopriienko said, the deputy director of development at the Kyiv School of Economics who compiled the statistics.

The growth of the renminbi highlights Russia’s economic shift to China, as trade between China and Russia will reach a record high of $185bn by 2022.

Before the invasion of last year, over 60% of Russia’s export payments were made in “toxic currencies” such as dollar and euro. Renminbi accounted for less than 1%.

According to data provided by the Russian central bank, “toxic” currencies now account for less than half of all export payments. The renminbi, on the other hand, accounts for 16 percent.

Raiffeisen has been one of the few western lenders to maintain a significant presence on Russian soil, following several foreign lenders’ decision last year to cut ties with Russia and sell subsidiaries.

Reforms introduced by the Kremlin in the summer of last year have made it harder to sell foreign subsidiaries. Alexei Moiseev, Russia’s deputy minister of finance, reaffirmed Friday the government’s position on preventing foreign bank sales.

The Austrian lender increased pay by EUR200mn for its Russia-based employees.

The European Central Bank is increasing pressure to get lenders, including Raiffeisen that it supervises out of Russia.

Raiffeisen is looking for ways to sell or spin off its Russian business while remaining compliant with both local and international laws.

The bank said: “We will continue to pursue such possible transactions while we reduce business activity in Russia.”

In the 14-month period ending in March, the percentage of Russian bank assets owned by foreign lenders decreased from 6.2% to 4.9%.

ICBC, Bank of China and Agricultural Bank of China declined to comment.