Russian banks have reduced the volume of deposits in Chinese currency abroad

Balances on deposits of Russian banks abroad fell to more than a year’s minimum. This was mainly due to the reduction of Chinese currency balances. In part, funds from deposits could be transferred to correspondent accounts abroad, but in general, Russian credit institutions could change their risk policy amid pressure on Chinese banks and move funds to alternative instruments. Experts believe that Russian banks receive less liquidity, as companies prefer to keep deposits in yuan directly in foreign banks.

Foreign currency balances of Russian banks on deposit and correspondent accounts abroad in May in terms of dollars decreased by $1.6 billion, to $50.8 billion. This is evidenced by data from the review of financial market risks published by the Central Bank. This is the lowest value since March last year, when balances fell below $50 billion. Most of the funds banks keep on correspondent accounts ($38.4 billion as of June 1), while only $12.3 billion is on deposits.

The biggest decline in May was in Chinese currency deposits, which fell $0.6 billion to less than $1.0 billion, a ten-month low. Balances on deposits in dollars decreased by $0.2 billion to $8.3 billion. Balances on correspondent accounts in yuan rose by $0.3 billion to $10.5 billion, breaking the negative trend of recent months.

“Nostro account balances are mainly used for trade settlements, and the dynamics generally correlates with changes in trade turnover between countries,” notes Natalia Bogomolova, an analyst at NRA banking ratings. The foreign trade turnover of Russia and China is growing at an annual rate of 20%, estimated on July 11, Chinese Ambassador to Russia Zhang Hanhui. In turn, Alexei Dakhnovsky, Russian trade representative in China, reported that the trade turnover between Russia and China in the first five months of 2023 reached almost $94 billion (quote from RIA Novosti). In general, last year it amounted to $190 billion.

In May and in general since the beginning of 2023, the yuan has weakened against the dollar, said Yury Belikov, managing director for validation at the Expert RA agency. However, according to him, the exchange rate difference explains only a small part of the reduction in funds on deposits. In general, such dynamics may indicate that “enterprises engaged in foreign economic activity, even when paying in yuan, keep their own funds in accounts with non-resident banks, and for Russian banks this is a lost yuan liquidity,” Mr. Belikov believes. At the same time, he clarifies, an increase in the share of ruble settlements in foreign trade “should increase the involvement of Russian banks, but also does not benefit the volume of transactions in yuan and the corresponding liquidity.”

In general, the balances on correspondent accounts and funds placed on the interbank market are “rather volatile,” notes Yegor Lopatin, deputy director of the group of ratings of financial institutions of the NKR agency. A more complete picture should show intra-month account balances and turnovers (which are not disclosed.— “b”).

The decline in yuan funds may be due to “a change in the risk policies of Russian banks and a more cautious approach to placing funds in non-resident banks, given the increasing pressure from unfriendly countries, in particular on Chinese banks,” Mr. Lopatin admits.

In particular, earlier the Russian subsidiary of the Chinese group Bank of China stopped accepting payments from Russian banks, including in yuan, sent to Europe and the United States (see Kommersant of June 19). In addition, according to Ms. Bogomolova, banks are increasing investments in alternative instruments denominated in yuan, focusing on market conditions.

Olga Sherunkova