Chinese and Vietnamese Banks Interested In Opening Branches In Russia

Chinese and Vietnamese banks are interested in expanding into and opening branches in Russia, according to Anatoly Aksakov, the Chairman of the State Duma’s Financial Market Committee. Aksakov is also the head of the Association of Banks of Russia’s council.

He said “Several credit organizations from China, not the top tier or largest ones, are showing an interest in Russia and want to use new opportunities for opening branches. We now have legislation so that foreign banks can open branches in order to work here.” He was speaking at the Tolk financial and investment conference organized by TBank.

“We’re receiving signals; there is an interest in Russia. The economy is developing, and obviously, everyone wants to earn money. That includes the Chinese, they were actively giving us signals. We’ve received information from Vietnam that their banks are also ready to come here” he said.

Russian President Vladimir Putin signed a bill into law in August that permits foreign banks to open branches in Russia. Foreign banks will have the right to create no more than one branch in Russia. Such branches must have a full name in Russian, and no more than half of their employees can be foreign citizens. They will be obligated to observe Russian laws regarding anti-sanctions policies.

Regarding Aksakov’s statement that the banks involved may not be the largest, this would fit in with our analysis that suggests that Chinese and Vietnamese banks with no other international exposure may well enter the Russian market as they have little to lose if hit by Western financial sanctions. Any resulting SWIFT cut-off from international transactions would simply be replaced with Russia-China connectivity via Russia’s SPFS and China’s CIPS financial transaction systems, and with Vietnam through Russia’s SPFS and Vietnam’s SBV and PSBM2 interbank systems. If this assumption is correct, this will mean that specialist foreign trading banks will evolve with a specific remit to handle only Russia-China or only Russia-Vietnam trade. There are likely to be other foreign banks emerging in the Russian trade space that specialise only in bilateral trade, especially from Asia.

Russia’s 2024 bilateral trade with China is expected to reach about US$240 billion, although the potential is still higher. 2024 growth has been hampered by Western sanctions making payments between the two countries difficult – hence the need for a specialist Chinese transactional bank to handle this trade. About 90% of all Russia-China trade is now conducted in either Rubles or RMB Yuan.

Russia’s 2024 bilateral trade with Vietnam is expected to reach about U$4.7 billion, with similar issues to China – growth potential has been dampened by Western financial systems. However, changes in Russian banking regulations and the emergence of alternatives to SWIFT can be expected to minimize the longer-term impact of Western sanctions.