In April, Russian banks increased the balances in the currency of friendly countries on correspondent accounts abroad

In April, the funds of Russian banks in the currency of friendly countries (except for the yuan) on correspondent accounts abroad grew sharply, 1.5 times, while the balances on correspondent accounts in yuan remained at the level of the beginning of the month ($10 billion). According to Kommersant’s interlocutors, banks are forced to have a double reserve of account balances in non-tradable currencies, such as the Indian rupee, in order to promptly service foreign economic activity. Banks do not need a large reserve of yuan, since they can be quickly purchased on the market.

According to the results of April, Russian banks significantly increased the balances in the currency of friendly countries (excluding the yuan) on nostro accounts in non-resident banks.

They reached $4.7 billion (in equivalent), having increased by $1.7 billion in April.

This follows from the review of financial market risks published on June 13 by the Bank of Russia. The Central Bank listed virtually all the currencies of friendly countries, which accounted for 99% of these balances: the Hong Kong dollar, the UAE dirham, the Indian rupee, the Turkish lira, the Vietnamese dong, the Kazakh tenge, the Belarusian ruble, the Armenian dram and the Bahraini dinar.

According to the Central Bank, the balances on these accounts began to grow steadily from the second half of 2022, having risen above $2.7 billion by the beginning of this year. At the same time, at the end of April, the total volume of currency balances reached $39 billion, and the currencies of friendly countries accounted for $14.9 billion, slightly less than the volume of US dollars ($15.4 billion). It is indicative that the balances in yuan for April slightly decreased (to $10.2 billion), while those in dollars decreased by almost 20%.

Among the “other friendly currencies” may be, first of all, the Indian rupee and, secondly, the UAE dirham, banking expert Alexei Nechaev believes.

The currency can accumulate on correspondent accounts due to the growth of foreign economic activity, he says. “Exports to India prevail over imports, which means there is a trade surplus. Rupee balances can be accumulated in the accounts of Russian banks that service foreign trade contracts, since there are no ways to repatriate them, unlike, for example, the yuan,” explains Mr. Nechaev. At the same time, even Indian companies can pay in the currencies of neighboring states. So, in 2022, Reuters reported that Russian coal was paid by India in yuan and dirhams. At the same time, the dirham is not traded on the Russian exchange market. However, in the over-the-counter market in terms of trading volume, according to the Central Bank, it is among the five most popular currencies.

According to Vladimir Pribytkin, Chairman of the Board of Directors of PSCB, the observed growth can be associated with a shift in foreign economic activity to more friendly countries. In addition, according to him, the dynamics can also be explained by a change in correspondent relations: at the end of May, the Austrian Raiffeisen Bank International closed correspondent accounts for all Russian banks. There were different deadlines for different banks, but in general everyone was warned in advance, so the balances smoothly flowed to other banks, some of them could move to friendly countries, he says.

The expansion of correspondent relations between Russian banks and credit institutions of friendly countries is also confirmed by the Central Bank.

At the end of May, the Bank of Russia published the corresponding index for the first time. The index takes into account the number of unique correspondent relationships, the number of unique Russian banks with correspondent relationships, and the number of unique counterparties (non-resident banks). According to the Central Bank’s calculations, since February 2022, the index of correspondent relations in “toxic” currencies has fallen sharply – from 0.99 at the beginning of the year to 0.64 by the beginning of April 2023. During the same period, the index in the currency of friendly countries rose from 1 to 1.64.

At the same time, the volume of balances on correspondent accounts should correlate with trade with the relevant countries, but this is not currently observed, Mr. Pribytkin notes. According to him, the yuan, in fact, has already become a world currency, and it makes no sense for banks to keep large reserves on correspondent accounts for servicing foreign economic activity, if the currency can be freely bought in one day. “Banks try to service payments promptly, and if the currency cannot be bought quickly, then you have to keep a double reserve to service payments,” Mr. Pribytkin explains.

Olga Sherunkova