Chinese Lenders Step Up as Western Banks Retreat from Russia
Chinese financial institutions have significantly increased their support for Russian banks, filling the void left by Western banks that exited the country following Moscow’s invasion of Ukraine. This move is part of China’s broader strategy to promote the renminbi as a global alternative to the U.S. dollar.
Over the past 14 months, the combined exposure of four major Chinese banks—the Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank, and Agricultural Bank of China—to Russia surged from $2.2 billion to $9.7 billion, according to data analyzed by the Kyiv School of Economics for the Financial Times. ICBC and Bank of China alone accounted for $8.8 billion of this amount.
In contrast, Austria’s Raiffeisen Bank, which had the largest foreign exposure to Russia, saw its assets increase from $20.5 billion to $29.2 billion during the same period. However, Raiffeisen has since reduced its assets to $25.5 billion and is exploring options to exit the Russian market.
The influx of Chinese loans reflects Russia’s shift towards using the renminbi instead of the dollar or euro as a reserve currency. According to Andrii Onopriienko from the Kyiv School of Economics, these loans demonstrate the impact of Western sanctions and Russia’s economic pivot towards China.
Trade between China and Russia reached a record $185 billion in 2022. Before the invasion, over 60% of Russia’s export payments were made in what are now considered “toxic currencies” like the dollar and euro, with less than 1% in renminbi. As of recent data, renminbi payments have risen to 16% of export transactions, while “toxic currencies” have fallen to less than half.
Raiffeisen remains one of the few Western banks with a significant presence in Russia, despite facing challenges from new Kremlin reforms that hinder foreign banks’ ability to sell their Russian assets. Raiffeisen’s Russian operations saw a 9.6% increase in profits to €867 million in the first half of this year, with the bank also raising pay for its local staff by €200 million.
The European Central Bank is intensifying pressure on banks like Raiffeisen to exit Russia. Raiffeisen is actively seeking ways to either sell or spin off its Russian operations while complying with both local and international regulations.
Overall, the proportion of Russian banking assets held by foreign lenders has decreased from 6.2% to 4.9% in the 14 months to March. The Chinese banks involved declined to comment on the developments.
