China State Banks Restrict Financing for Russian
ICBC stops issuing letters of credit after Ukraine invasion
China’s top banks have complied with previous U.S.
At least two of China’s largest state-owned banks are
restricting financing for purchases of Russian
commodities, underscoring the limits of Beijing’s pledge
to maintain economic ties with one of its most important
strategic partners in the face of sanctions by the U.S. and
Industrial & Commercial Bank of China Ltd.’s offshore
units stopped issuing U.S. dollar-denominated letters of
credit for purchases of physical Russian commodities
ready for export, two people familiar with the matter said.
Yuan-denominated letters of credit are still available for
some clients, subject to approvals from senior executives,
the people said, asking not to be identified discussing
The move followed Russia’s invasion of Ukraine, which
triggered a wave of sanctions from countries including the
U.S., the U.K. and Japan and stoked speculation that more
may follow. Because commodity-linked letters of credit
are issued so frequently, they would be among the first
transactions impacted by the threat of sanctions.
Bank of China Ltd. has also curbed financing for Russian
commodities based on its own risk assessment, another
person said. The lender has yet to receive explicit
guidance on Russia from Chinese regulators, two people
The Chinese banks’ response could be temporary,
especially given that Western sanctions have so far spared
Russia’s energy sector. It’s unclear whether Chinese banks
have pulled back from other forms of financing for Russian
companies and individuals, and their policies could
The curbs highlight the difficult balancing act facing
China’s biggest financial institutions and the nation’s
president, Xi Jinping. While Russia is a major energy
supplier to China and the countries often find themselves
aligned in geopolitical disputes with the U.S., Russia’s
economic weight pales in comparison to Western nations
that buy many of China’s exports and control its access to
the dollar-dominated international financial system.
China’s four largest banks have complied with previous
U.S. sanctions against Iran, North Korea and even top
officials in Hong Kong because they need access to the
U.S. dollar clearing system, a person familiar with the
matter said. In a phone call with Vladimir Putin on Friday,
Xi urged the Russian leader to negotiate with Ukraine to
“Chinese financial institutions take sanctions compliance
seriously,” said Ben Kostrzewa, foreign legal consultant at
Hogan Lovells in Hong Kong, who formerly handled U.S.-
China disputes and negotiations at the Office of the U.S.
Trade Representative. “They don’t want to be sanctioned
themselves, they can’t lose access to U.S. dollar
transactions, so they are going to have to think about it
very seriously — whatever the geopolitical impact might
ICBC, Bank of China and the China Banking and Insurance
Regulatory Commission didn’t immediately respond to
requests for comment.
With international lenders including ING Groep NV and
Rabobank also imposing restrictions on commodity-trade
finance linked to Russia, demand for the nation’s resource
exports could dwindle. Chinese state-owned coal
importers are unable to get credit lines from banks in
Singapore for shipments from Russia, people familiar with
the matter said.
U.S. sanctions put China’s state-owned financial
institutions in a tough spot because many have
established close ties with Russia over the past decade.
ICBC’s Moscow branch alone had close to $1 billion of
assets by the end of 2020 and offered an extensive range
of yuan-denominated services, including deposits, lending,
cross-border settlement and trade finance. Bank of China,
Agricultural Bank of China Ltd. and China Construction
Bank Corp. all have operations in Russia.
China’s largest policy banks — China Development Bank
and Export-Import Bank of China — have provided tens of
billions of dollars of credit to Russia as part of Xi’s Belt-
and-Road Initiative, funding everything from infrastructure
to oil and gas.