Russia’s Bank Rossiya has been added to the United States’ sanctions list as of 20 March.
The bank, which has close ties to the Kremlin, president Vladimir Putin, and Russian energy giant Gazprom, has been targeted by the US government with the intention that it will be “frozen out of the dollar”.
An immediate result of the sanctions has been the move by Visa and MasterCard to cease processing the bank’s credit card payments. Initial reports suggest that Bank Rossiya and two other banks have experienced problems with customers using bank cards online, abroad, and in retail establishments.
The bank responded with a statement asserting that it was suffering little effect from the sanctions, and that clients could still access their deposits from automated teller machines (ATMs). The Central Bank of Russia (CBR) also intervened to bolster the stability of Bank Rossiya, and pledged assistance should effects of the sanctions begin to bite.
The escalation of political tensions between Russia and Western countries over Ukraine has been dismissed by Russia as having little tangible effect on financial stability in the local banking system. Indeed, Bank Rossiya is only Russia’s 17th-largest bank with total assets of around US$10bn. The US sanctions on Bank Rossiya are significant because of the cultural impact of targeting ‘a Kremlin bank’.
While US sanctions are predicted to have little direct impact on Russia’s major banks, reports suggest that there could still be damage to the country’s banking system. The extent could be decided by market reaction to the conflict and even potential actions by Western bank supervisors to ring-fence local banks from exposure to Russian counterparts.
Foreign investment in the Russian banking sector account for roughly 13% of total funds, indicative of a high reliance on external liquidity. This raises the sector’s vulnerability to a potential spiral of investment aversion towards Russia, especially if markets perceive that further sanctions and a plummeting currency can seriously harm the Russian economy and make transactions with Russian firms more difficult.
Additionally, potential measures by Western financial supervisors to curb local bank exposure to Russia could also lead to further difficulties for Russian banks when fund raising in international wholesale markets.
These factors could potentially undermine the success of or even derail recently-announced initial public offerings (IPOs) on the London stock market, such as that of Moskovsky Kreditni Bank (Credit Bank of Moscow).
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