China’s RMB Yuan Usage Spreads Across Russia’s Financial Portfolios

Against the backdrop of the Russian Central Bank’s devaluation of bank balance sheets, the volume of corporate loans in China’s RMB Yuan in Russia is growing; and are offered by an increasing range of players. This growth has arisen due to RMB Yuan lending rates being lower than those for Ruble loans, and by the demand for converting loans from unfriendly currencies.

According to a Kommersant survey, Russian banks are increasing the volume of lending to corporate clients in RMB Yuan. At the end of February 2023, Alfa-Bank’s portfolio exceeded CNY18 billion, (US$2.61 billion) while Rosbank’s portfolio was about CNY2 billion (US$290 million), and Sberbank’s RMB loan portfolio by the end of 2022 amounted to about CNY9 billion (US$1.31 billion).

Sberbank have stated “We have marked customer demand for Chinese Yuan. It is due to a reorientation to Asian markets, exporting companies attract financing in Yuan.”

At Zenit Bank, where the first loan tranches began to be issued in December 2022, by the end of February 2023, about 10% of their corporate clients loan portfolio was in RMB Yuan. “The growth is associated with both new issuances and the replacement of US Dollar loans with Chinese Yuan” Zenit explained.

Gazprombank for example launched money remittance services for individuals in Chinese Yuan from their accounts to the accounts of individuals and legal entities in any other bank in Russia or abroad – including China – in early December. That has been and will continue to be boosted by the huge growth in Russia-China bilateral trade.

According to the Russian Central Bank, during January-September 2022, the high activity of banks in issuing loans in Yuan came in September 2022, when numerous large banks launched RMB Yuan products.  Some 45.9 billion Rubles (US$610 million) were immediately issued in Yuan. In February 2023, for the first time, the Chinese Yuan became the most traded futures currency on the Moscow Stock Exchange. It overtook the Euro in December.

The overall currency value of the corporate portfolio is declining and, according to the Central Bank, at the beginning of February 2023 was 16.2% against 24.2% a year ago. As the head of the financial analytics centre of Sberbank, Mikhail Matovnikov, notes, both banks and borrowers are less willing to take on currency risks. “The demand for foreign currency lending in Chinese Yuan exists because some companies have a natural hedge, that is, expenses and incomes are denominated in the same currency,” he stated.

Maxim Yakovchenko, the vice-president of Novikombank, which began lending to Russian corporate clients about six months ago, said that in the context of a sharp reduction in the use of Western currencies, the volume of settlements of their clients participating in foreign economic activity, not only in Russian Ruble, but also in alternative foreign currencies, primarily in Chinese Yuan, had increased.

The reduction in the currency share of the loan portfolio will occur primarily at the expense of the currencies of unfriendly countries, while the share of Chinese RMB Yuan loans will continue to increase.

Elsewhere, Vyacheslav Andryushkin, deputy Chairman of Russia’s SDM Bank says that it expects that by the end of 2023 the use of client loans involving Chinese Yuan will grow several times.

MTS Bank, which launched Yuan lending in December, believes that the attractiveness of Yuan loans is increased because their interest rates are lower than for Ruble loans. The average actual market rate does not rise above 6-7% per annum – attractive for borrowers.

Against the backdrop of this growth of Chinese RMB Yuan lending, banks are also seeking to increase their portfolio of liabilities by raising interest rates for RMB Yuan deposit accounts. Sberbank raised them to 2.59% per annum, VTB up to 3.01% per annum, Alfa-Bank up to 2.7-3%, GPB up to 1.5%, and Novikombank up to 2.6% per annum.

However, the overall view is that lending in Chinese Yuan will not replace US dollar and Euros, because the main trend is devaluation. The Central Bank announced that it was raising the norms of required reserves for foreign currency obligations from March 2023 by 2 percentage points to 7%.  No exception was made for the Yuan.

In addition, Russian exporters’ demand for investment is falling, as they are already able to finance working capital and the required minimum capital expenditures with their operating cash flows. This is underlined by the performance of the few examples of RMB Yuan bond placements – which raised doubts that RMB Yuan loans will take a significant share in banks’ portfolios. But then again, during these uncertain times, things can change – with the RMB Yuan now beginning to cement itself as a third global reserve currency.

Source: Olga Sherunkova for Kommersant with additional trade commentary by Chris Devonshire-Ellis 

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