Bank substitution from the Middle Kingdom: PRC lending institutions quadruple their assets in Russia
Four Chinese banks — Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank and Agricultural Bank of China – more than quadrupled their assets in Russia, from $2.2 billion to $9.7 billion, the Financial Times reported. If the trend continues, then in the near future, Chinese banks will be able to replace European and American “colleagues” who do not want to work with Russia.
According to the data for the 14 months to March 2023, the most rapid growth was shown by ICBC and Bank of China, which accounted for $8.8 billion out of $9.7 billion.
So far, the share of Chinese financial institutions is not comparable to that that are occupied by European financial groups. For example, the subsidiary bank of the Austrian group over the same time increased its assets in Russia from $20.5 billion to $29.2 billion. However, later, from March 2023, they decreased to $25.5 billion.
In addition, this credit institution wants to leave our country amid pressure from shareholders and regulators in the West. In total, the share of Russian banking assets owned by foreign creditors decreased over the specified period from 6.2% to 4.9%.
But the place is never empty: the subsidiaries of Chinese banks have increased their lending to Russian branches.
For example, from February 1, 2022 to June 1, 2023, the Russian branch of Bank of China increased the volume of loans provided to other banks by eight times. So far, four “subsidiaries” of Chinese banks own interbank loans for only 133.9 billion rubles – this is 3.3% of the total volume. But the trend is important: at the beginning of February last year, their market share was 0.7%.
“This is a reflection of the turn to the East in the financial sector,” says Kirill Kulakov, president of the Regional Association of Appraisers. – After European credit organizations left the Russian financial market, their role is taken over by Chinese banks. At present, we are talking mainly about interbank lending, which allows Russian companies to carry out foreign economic activity.”
It turns out that the degree of dependence of Russian banks on European capital is decreasing, but it is growing – on China. Opinions about whether this is good for our country differed. “I believe that at the moment this is a positive trend for Russia,” says Associate Professor of the Department of World Financial Markets and Fintech of the Russian University of Economics. Plekhanov Ilyas Zaripov. “The enlargement of the capital base of Chinese banks in Russia means that Russian projects are in demand for large Chinese businesses, to the needs of which the Chinese financial institutions that serve them are adjusted.” This is a good signal of future investment and business expansion plans by Chinese partners.
According to Svetlana Zubkova, Associate Professor of the Department of Banking and Monetary Regulation of the Financial University, the expansion of Chinese banks in Russia is natural. The share of the yuan in the structure of the foreign exchange market, according to the Moscow Exchange, has grown from virtually zero to 35% over the past year and a half. The share of the yuan in global trade settlements also increased, from 2% to 4.5%. Russian banks that have begun to actively work with the yuan are required to open a correspondent account with a Chinese bank, so the interest of financial institutions is mutual here.
However, not everyone is so optimistic in their assessments. According to the head of the analytical department of the BKF bank Maxim Osadchy. the excessive dependence of the domestic economy on China potentially poses a potential threat to Russia's economic sovereignty. In addition, the yuan is not a freely convertible currency, it is only suitable for settlements with China itself, so the yuanization of the Russian economy contributes to Russia's dependence on China, the expert is sure.
At the same time, while the overall share of the Chinese banking business remains very low and should not cause any concern. “The total assets of the four divisions of Chinese banks operating in Russia in dollar terms are about 3%,” says Natalia Milchakova, lead analyst at Freedom Finance Global. – In addition, these banks serve in Russia either only legal entities, and if they provide services to individuals, then their number is very limited. Basically, these services are reduced to payroll projects for employees of Chinese companies whose branches or subsidiaries operate in the Russian Federation.”
The question remains how the redistribution of the Russian banking market between China and Europe will affect the interests of depositors. According to Zaripov, strengthening the position of Chinese banks will allow access to new technologies and financial products, including fintech, as well as increase competition, which is always beneficial for consumers.
For her part, Milchakova claims that the presence of Chinese banks will have almost no effect on the lives of citizens, except for cases when Russians are going to open Union Pay cards of a Chinese bank so as not to have problems traveling abroad.