China's Top Banks Deal Painful Blow to Russia

More Chinese banking giants have restricted transactions from Russia, dealing a blow to an already isolated Moscow.

The world's third-largest bank by market capitalization, the Industrial and Commercial Bank of China (ICBC), and three other top lenders have stopped accepting virtually all payments from Russia in order to dodge U.S. punishment for aiding that country over its war against Ukraine, according to Russian newspaper Izvestia.

China has opposed sanctions on Russia since the beginning of the 2022 invasion and buoyed its northern neighbor's isolated economy via robust trade and investment.

Yet Chinese banks have gotten increasingly risk-averse since U.S. President Joe Biden signed an executive order in December imposing secondary sanctions on a wide range of industries deemed to be supporting Russia's military supply chain.

Almost immediately, Russian traders began encountering difficulties making payments to Chinese banks for finished products, and the situation only worsened in March, according to local reports.

The Russian foreign ministry didn't immediately respond to a written request for comment.

Izvestia cited an unnamed source from the Russian business community as saying that by late last month, as many as 80 percent of transfers were being returned.

Alexey Egarmin, director general of the Business Council at Russia's Chamber of Commerce and Industry, said a growing number of financial institutions have stopped accepting Russian payments in Chinese yuan entirely.

These include ICBC, China CITIC Bank and the Industrial Bank Co.—China's largest, 10th-largest, and 12-largest banks in terms of market capitalization, respectively—along with the Bank of Taizhou.

Their exits from Russian business follow those of other major credit institutions, such as the Bank of Ningbo and Ping An Bank, earlier this year.

The anonymous source said the Bank of China has also begun restricting most business with Russian customers. Importing equipment became particularly difficult this month.

That bank has also reportedly begun inquiring whether transactions are connected to North Korea, Syria, Iran and other areas subject to Western sanctions.

Impaya Rus' commercial director, Alexei Razumovsky, described for the broadsheet how transactions with large Chinese banks are now typically played out.

First, they sit untouched for long periods before the sender is asked to submit further information for verification. The transfer is then eventually declined without explanation.

Russian payments that do go through are now primarily being handled by smaller lenders, but even these are starting to get scrutinized, Razumovsky said.

The U.S. dollar is not a feasible alternative to the yuan since payments in the greenback are easy to track from the U.S.

Alexey Poroshin, CEO of First Group, told the newspaper there is now a move toward making payments through third countries friendly to Russia. Companies not known to be associated with the sanctioned state then relay the money to China.