"Sanctions on Russia Sound Alarm for Chinese Banks" 8 March 2022

As China’s banks find themselves walking a tightrope amid the deepening economic warfare between Russia and the West, those with international exposure need to take extra care to ensure they avoid being hit by the fallout from U.S. and European sanctions, analysts say.

The U.S. and its allies have imposed sweeping financial sanctions on Russia following its attack on Ukraine, including freezing the assets of its central bank and removing seven Russian banks from SWIFT, the global financial messaging system that links lenders around the world and facilitates international money transfers.

While Chinese institutions are technically able to continue engaging with sanctioned Russian entities under domestic law, the move has prompted a number of Chinese financial institutions to assess their business dealings in Russia and evaluate the risks and their potential exposure as they await further guidelines from their head offices, people familiar with the matter told Caixin.

Apart from the suspension of some ongoing dollar-denominated transactions, the sanctions have had limited impact on Chinese banks so far, sources at some lenders have told Caixin. However, others are increasingly wary of potential secondary sanctions that could be applied to those seen as circumventing primary sanctions by continuing to do business with sanctioned Russian entities. [...]

Some of China’s biggest lenders are already showing signs of compliance with Western sanctions on Russia, according to a Bloomberg report last month. The offshore units of Beijing-based Industrial and Commercial Bank of China Ltd., the world’s biggest bank by assets, stopped issuing U.S. dollar-denominated letters of credit for purchases of physical Russian commodities ready for export, the report said, citing people familiar with the matter. Bank of China Ltd. has also curbed financing for Russian commodities, the report said. [...]