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Bangladeshi banks look for Chinese payment channel to skirt Western sanctions
Businesses are persuading banks to shift payment settlement with Russian banks through China
Bangladeshi banks are looking for Chinese payment channels to settle transactions with Russian banks that were removed from the SWIFT system to remedy difficulties faced by importers and exporters after Western sanctions following Russia's attack on Ukraine.
Businesses are persuading banks to shift payment settlement with Russian banks through China.
In this process, Cross-Border Interbank Payment System (CIPS), the rails on which Chinese banks transfer and clear yuan-denominated payments around the world, will be used, said bankers.
When the transactions will be done through China, the cheque clearing will be yuan-denominated instead of the dollar.
In this case, payment will be made from Bangladeshi bank's Nostro account in China.
A Nostro account is a bank account that a bank holds with a foreign bank in the currency of the country where the funds are held.
Currently, a few banks have Nostro accounts with China but those are not used for payment as 99% of foreign transactions are done in dollars.
In the current practice, cheque clearing is held in New York at dollar-denominations through SWIFT system and payment is made from Bangladeshi Bank's Nostro account held in the US.
As some Russian banks were barred from the SWIFT system, there is no way for banks to settle dollar-denominated paymenta.
One business group is going to use the Chinese payment channel for export from Russia through Bangladeshi private lender Bank Asia.
Talking with The Business Standard, Md Arfan Ali, managing director of Bank Asia, said customers want to shift payment settlement in China to avoid communication difficulties with Russian banks.
He, also the chairperson of SWIFT user communities in Bangladesh, said one exporter of his bank is going to open an LC (Letter of Credit) with a Chinese bank to settle payments with Russian banks.
In this case, the payment will be of yuan which will be made from Bank Asia's Nostro account in China, he said.
The cheque clearing will be in yuan but the customer wants to receive the proceeds in dollars to avoid exchange rate risk. In this case, the Chinese bank will take the exchange rate risk in exchange for a commission.
The process will increase costs for businesses but customers can agree to pay extra charge to avoid future payment risk amid the ongoing uncertainty due to the Russia-Ukraine crisis, he added.
Soon after the announcement of the US administration about cutting some Russian banks from the SWIFT system, Javier Perez-Tasso, CEO of SWIFT noticed SWIFT user communities across the world, including Bangladesh, willing to implement the sanction.
According to the SWIFT notice, three Russian financial institutions will be disconnected from the payment system from 11 March and three Belarus banks from 20 March.
Following the SWIFT notice, banks moved for alternative options of payment settlement.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said banks are looking for alternative payment channels and reviewing the Chinese payment channel to understand how it will work.
So far, the US and its allies have targeted 10 of Russia's biggest financial institutions. The Biden administration announced to block Russia's largest bank, Sberbank, VTB, the second-largest bank, and three other financial institutions from accessing the US financial system.
The impact of cutting Russia off from the SWIFT system, however, is little for Bangladesh as most buyers are global and make payments with Russia through third countries like Singapore or Dubai, said a senior executive of the Bangladesh Bank.
Citing an instance, he said global clothing buyer H&M accounted for 90% of exports from Bangladesh for Russia and this buyer makes payments through a third country.
Bangladesh received export payment from Moscow-based company Alpha group on Monday, he said.
He said that big Russian financial institutions came under sanctions but in the case of Bangladesh most payments are held with small banks.
Ali Reza Iftekhar, managing director of Eastern Bank and chairman of ABB (Association of Bankers Bangladesh), said his bank is receiving export payments from Russia.
He said that they are not facing any problems in payment so far, but they maintain extra caution about transactions with Russian banks to avoid risk of further sanctions.
Trade with Russia and Ukraine
Bangladesh's exports and imports with Russia have doubled over the last five years since FY17.
The total exports to the country increased to Tk4,639 crore in FY21 from Tk2,704 crore in FY17, according to the Bangladesh Bank data.
In FY21, the value of goods exported to Russia was higher than that of imported ones. The total imports amounted to Tk4,000 crore in the last fiscal year.
Textile products accounted for more than 96% of exports in FY21, while among major imported items, vegetables accounted for 75%. And, the second major item that Bangladesh imported was petroleum oil.
On the other hand, imports with Ukraine have also been increasing since FY17 with Tk2,000 crore, which more than doubled to Tk4,400 crore in FY20, according to Bangladesh Bank data.
But imports with Ukraine saw a drastic fall in FY21 by almost half to Tk2,700 crore.
Of the major imported items, vegetable items accounted for more than 93% in FY21.
Exports to Ukraine were a negligible amount of Tk144 crore in FY21, central bank data showed.
www.tbsnews.net
Businesses are persuading banks to shift payment settlement with Russian banks through China
Bangladeshi banks are looking for Chinese payment channels to settle transactions with Russian banks that were removed from the SWIFT system to remedy difficulties faced by importers and exporters after Western sanctions following Russia's attack on Ukraine.
Businesses are persuading banks to shift payment settlement with Russian banks through China.
In this process, Cross-Border Interbank Payment System (CIPS), the rails on which Chinese banks transfer and clear yuan-denominated payments around the world, will be used, said bankers.
When the transactions will be done through China, the cheque clearing will be yuan-denominated instead of the dollar.
In this case, payment will be made from Bangladeshi bank's Nostro account in China.
A Nostro account is a bank account that a bank holds with a foreign bank in the currency of the country where the funds are held.
Currently, a few banks have Nostro accounts with China but those are not used for payment as 99% of foreign transactions are done in dollars.
In the current practice, cheque clearing is held in New York at dollar-denominations through SWIFT system and payment is made from Bangladeshi Bank's Nostro account held in the US.
As some Russian banks were barred from the SWIFT system, there is no way for banks to settle dollar-denominated paymenta.
One business group is going to use the Chinese payment channel for export from Russia through Bangladeshi private lender Bank Asia.
Talking with The Business Standard, Md Arfan Ali, managing director of Bank Asia, said customers want to shift payment settlement in China to avoid communication difficulties with Russian banks.
He, also the chairperson of SWIFT user communities in Bangladesh, said one exporter of his bank is going to open an LC (Letter of Credit) with a Chinese bank to settle payments with Russian banks.
In this case, the payment will be of yuan which will be made from Bank Asia's Nostro account in China, he said.
The cheque clearing will be in yuan but the customer wants to receive the proceeds in dollars to avoid exchange rate risk. In this case, the Chinese bank will take the exchange rate risk in exchange for a commission.
The process will increase costs for businesses but customers can agree to pay extra charge to avoid future payment risk amid the ongoing uncertainty due to the Russia-Ukraine crisis, he added.
Soon after the announcement of the US administration about cutting some Russian banks from the SWIFT system, Javier Perez-Tasso, CEO of SWIFT noticed SWIFT user communities across the world, including Bangladesh, willing to implement the sanction.
According to the SWIFT notice, three Russian financial institutions will be disconnected from the payment system from 11 March and three Belarus banks from 20 March.
Following the SWIFT notice, banks moved for alternative options of payment settlement.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said banks are looking for alternative payment channels and reviewing the Chinese payment channel to understand how it will work.
So far, the US and its allies have targeted 10 of Russia's biggest financial institutions. The Biden administration announced to block Russia's largest bank, Sberbank, VTB, the second-largest bank, and three other financial institutions from accessing the US financial system.
The impact of cutting Russia off from the SWIFT system, however, is little for Bangladesh as most buyers are global and make payments with Russia through third countries like Singapore or Dubai, said a senior executive of the Bangladesh Bank.
Citing an instance, he said global clothing buyer H&M accounted for 90% of exports from Bangladesh for Russia and this buyer makes payments through a third country.
Bangladesh received export payment from Moscow-based company Alpha group on Monday, he said.
He said that big Russian financial institutions came under sanctions but in the case of Bangladesh most payments are held with small banks.
Ali Reza Iftekhar, managing director of Eastern Bank and chairman of ABB (Association of Bankers Bangladesh), said his bank is receiving export payments from Russia.
He said that they are not facing any problems in payment so far, but they maintain extra caution about transactions with Russian banks to avoid risk of further sanctions.
Trade with Russia and Ukraine
Bangladesh's exports and imports with Russia have doubled over the last five years since FY17.
The total exports to the country increased to Tk4,639 crore in FY21 from Tk2,704 crore in FY17, according to the Bangladesh Bank data.
In FY21, the value of goods exported to Russia was higher than that of imported ones. The total imports amounted to Tk4,000 crore in the last fiscal year.
Textile products accounted for more than 96% of exports in FY21, while among major imported items, vegetables accounted for 75%. And, the second major item that Bangladesh imported was petroleum oil.
On the other hand, imports with Ukraine have also been increasing since FY17 with Tk2,000 crore, which more than doubled to Tk4,400 crore in FY20, according to Bangladesh Bank data.
But imports with Ukraine saw a drastic fall in FY21 by almost half to Tk2,700 crore.
Of the major imported items, vegetable items accounted for more than 93% in FY21.
Exports to Ukraine were a negligible amount of Tk144 crore in FY21, central bank data showed.
Bangladeshi banks look for Chinese payment channel to skirt Western sanctions
Businesses are persuading banks to shift payment settlement with Russian banks through China
