According to Bloomberg, the latest development marks a new episode in the escalation of Chinese state bank restrictions since early 2022 (Reuters)
Bloomberg quoted unnamed sources familiar with the matter as saying that Chinese state-owned banks have begun tightening restrictions on financing Russian customers, following the US decision to impose secondary sanctions on foreign financial companies that support Moscow's activities in the Ukraine conflict.
According to Bloomberg, at least two large banks have begun a comprehensive review of their Russian business operations in recent weeks, with a particular focus on cross-border transactions.
The sources revealed that banks are taking decisive action by cutting ties with sanctioned customers and stopping providing any financial services to the Russian military industry, regardless of currency or location of the transaction.
To ensure compliance, lenders are strengthening due process on customers, conducting thorough checks on business registrations, authorized beneficiaries, and final observers with ties to Russia.
The scope of the review is expected to extend to non-Russian customers involved in business in Russia or who transport important items to Russia through intermediary countries, according to the same source.
The US Treasury Department announced the use of secondary sanctions against banks that facilitate Russia's purchase of equipment for its military (Getty Images)
This development is a new episode in the escalation of restrictions imposed by Chinese state banks since early 2022, following the Russian-Ukrainian war, which led to widespread sanctions, including those imposed by the United States.
Last month, the U.S. Treasury Department announced the use of secondary sanctions against banks that facilitate Russia's purchases of equipment for its military, expanding financial pressure on Russian President Vladimir Putin.
According to Bloomberg, despite China's public opposition to U.S. sanctions, the move highlights the extent to which Chinese banks comply with the sanctions. China has refrained from providing significant military aid to Russia, even as it continues to provide diplomatic support to Putin and expand trade in areas not under sanctions.
During the ongoing conflict, China's exports to Russia increased significantly, making it Russia's largest oil importer.
The sanctions have significantly restricted the Central Bank of Russia's ability to access international reserves, leaving only gold and yuan. The share of yuan-based settlements rose to 27 percent as of September, up from 15 percent at the end of 2021.
In the financial field, Russian banks turned to the Chinese company "UnionPay" in 2022 after suspending Visa and MasterCard operations there.
China's top four state banks have a track record of complying with previous U.S. sanctions against countries such as Iran and North Korea to maintain access to the U.S. dollar clearing system.
U.S. sanctions have severely restricted the Central Bank of Russia's ability to access international reserves, leaving only gold and the yuan (Shutterstock).
The U.S. decision to impose secondary sanctions has sparked controversy because of its potential unpredictable impact and the risk of attendant side consequences. In response, banks operating in a number of countries may withdraw from entire sectors, even those that have not been subject to direct sanctions, out of caution to avoid violating the rules, she tells Bloomberg.
This latest round of restrictions requires banks to adhere to strict standards, especially when they are unsure which sectors could be affected by their Russia-related business transactions.
Source: Bloomberg