Shanghai, China (Source: Li Yang)

Chinese banks seek workarounds amidst sanctions against Russia: report

Top banks reportedly mull passing some of their business to small domestic-focused peers to avoid secondary sanctions.

Top Chinese banks are rushing to ensure they can maintain business ties with Russian clients without running afoul of a barrage of Western sanctions, reports Reuters, based on information shared by anonymous sources.

Whilst the Chinese banking regulator said this week the country would not join the West's sanctions on Russia, some of its banks have reportedly stopped issuing dollar-denominated letters of credit for purchases of physical commodities, sources said.

Also Read: Could China’s financial infrastructure play 'white knight' to embattled Russia?

Executives at leading Chinese banks are also reportedly exploring the possibility of passing some of their business to small domestically-focused peers to avoid getting caught in secondary sanctions, said two bankers with knowledge of the matter.

Secondary sanctions are restrictions that apply to entities that conduct US dollar business with the underlying sanctioned entity. An entity seen to be violating such sanctions faces the risk of being cut off from sources of US dollar liquidity.

"The sanctions don't apply directly to us and we can loan to Russian entities – but is it wise? Do we approve that loan to that one entity? It's not the best thing to do at the moment, is it?" said an executive at a Chinese-led development bank.

Here’s more from Reuters:

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