China Prepares Unpleasant Banking Surprise For Russia

The Russian subsidiary of one of the most important Chinese banks has refused to work with toxic clients from the Russian Federation.

Bank of China, the Russian subsidiary of the Bank of China, has suspended all operations with Russian banks that have fallen under US sanctions since June 24.

The decision is related to fears of secondary sanctions from the US. Bank of China is still working with non-sanctioned credit organisations in Russia, Kommersant writes, citing its own sources.

"This is not very pleasant news for the Russian market. There will be additional costs both in terms of time and the cost of processing payments," said one of the financiers. According to him, the bank has traditionally played a "significant role" in the bank's payment traffic.

In the Russian market, Bank of China's subsidiary ranks second in terms of assets among subsidiaries of Chinese banks - 592.4 billion rubles at the end of the first quarter of 2024 ($6.68 billion at the current exchange rate as of June 24).

Bank of China is a backbone settlement credit organisation for Chinese businesses, government agencies and large Russian companies. The bank's business is focused on RMB payments between Russia and China.

Bank of China's refusal to work with unsanctioned Russian banks exacerbates the problem of payments that "go beyond the banking sector, resulting in the state having less and less control over them and risks of fraud," a source told the publication.

Sources in the financial market confirmed: recently, payments are increasingly being made through non-bank payment agents, which makes the whole chain of transactions less transparent. At the same time, the activities of such intermediaries are beyond the control of regulators and are not transparent, which makes the mechanism risky. "If money hangs up, it will be returned in rubles, but it is not clear at what exchange rate it will be done," a market source explained.