Deutsche Bank shut down accounts of major Russian banks

Deutsche Bank stopped working with a number of large Russian banks, closing their correspondent accounts, RBC learned. Such actions can lead to problems with transfers abroad.

The German Deutsche Bank has terminated relations with a number of Russian banks that had correspondent accounts in euros opened with it. RBC was told about this by two sources in the financial market.

Deutsche Bank in mid-March 2022 sent a notification to Russian banks about closing accounts on April 8, in fact the accounts worked until April 7 inclusive and were closed on April 20, one of RBC's interlocutors said. He added that the decision affected many large credit institutions.

A second source confirmed that Deutsche Bank closed accounts for non-sanctioned banks back in March. “Right now, Deutsche Bank has a few correspondent accounts with small Russian banks that don’t draw attention to themselves, that have few transactions,” he said, adding that if the number of transactions at the bank grows, then Deutsche Bank closes the account.

In March 2022, Deutsche Bank condemned Russia's actions in Ukraine and decided to leave the country and not launch new projects here.

Banks announced the strengthening of control over SWIFT transfers abroad Finance

The Austrian banking group Raiffeisenbank International (RBI) also made the decision to close correspondent accounts for a number of Russian banks in April, an official representative of the group told RBC. He explained that this decision was made in order to “proactively” control the volume of transactions that RBI can process in a timely manner in favor of clients with open correspondent accounts. He did not say which banks he was talking about, but he stressed that the closure of correspondent accounts does not concern the Russian "daughter" - Raiffeisenbank.

RBC sent a request to Deutsche Bank and other major European banks. Finnish Nordea Bank has stopped processing payments to and from Russia due to the current sanctions regime and current restrictions, its representative said. And the Dutch banking group ING said it is "closely monitoring the situation to adapt its decisions." The rest of the foreign and Russian credit institutions did not respond to requests from RBC.

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Why correspondent accounts are needed

The main reason for the closure of correspondent accounts in euros by foreign banks is, first of all, continued external pressure on the Russian banking sector, as well as fears of being subject to secondary sanctions, said Konstantin Borodulin, NRA Banking Ratings Director.

Foreign credit organizations are afraid of being involved in making payments and transfers of funds of non-credit organizations, which are subject to sanctions and which may be clients of banks with open correspondent accounts, so they are closed, agrees Yury Belikov, Managing Director of the Validation Department of Expert RA: “This is rude, “one-stop” approach, but in this way foreign banks minimize the risks of fines and more serious regulatory consequences.”

The US Treasury warned foreign banks against helping Russia to circumvent sanctions Politics

Also, regardless of the sanctions, foreign banks minimize the likelihood of using their own infrastructure to withdraw capital to their jurisdictions, adds Belikov: “Potential cases of capital flight may be associated with violation of the law and may be classified as suspicious transactions. In turn, the conduct of the latter also generates regulatory risks up to license revocation, depending on the scale of such operations.”

For clients of Russian banks, this situation means problems with making payments and transferring funds to other jurisdictions, Borodulin points out. “Partly they can be solved through work with the subsidiaries of foreign banks in Russia, but it is difficult to say how long-term this interaction is, because a number of foreign banks have already announced plans to exit the Russian market,” the expert adds. Due to the closure of correspondent accounts, banks may lose part of the client base that needs to make cross-border transfers, but this is a small part and the corresponding stress is not critical for the banking business, Belikov said.

One of the RBI clients with whom relations were terminated was Tinkoff Bank, a source in the banking market told RBC. After the correspondent account was closed, the bank stopped making cross-border transfers in euros using the SWIFT international system. He explained this suspension by an increase in the period for the passage of SWIFT transfers. Cross-border transfers in dollars remain available to its clients, a Tinkoff representative told RBC. To make a cross-border SWIFT transfer, a bank must open an account with a foreign credit institution that is one of the participants in the transfer chain. Tinkoff Bank did not respond to questions about closing its accounts with RBI.

For the banks themselves, the closure of correspondent accounts means a shortfall in commission income from foreign economic activity and limited access to centralized and decentralized foreign derivatives markets as a way to place free liquidity and receive marginal income, lists Belikov. However, in his opinion, for banks, the shortfall in these incomes is a problem of a much smaller scale compared to the slowdown in lending and rising funding costs, and free liquidity placement operations are now mainly limited to the domestic market.