Explanator: Disconnecting Russia’s Banks: Sberbank Faces SWIFT Removal

LONDON, May 5 (Reuters) – The European Union aims to cut Sberbank (SBER.MM), Russia’s biggest creditor, from the international payments system SWIFT, as Western allies seek to further isolate Moscow from financial markets because of their war. in Ukraine.

The latest proposal is part of the sixth and toughest round of EU sanctions, which also includes a six-month embargo on crude. read more The measures still need to be approved by the governments of the 27 member states.

The EU had previously spared Sberbank what is seen as the toughest measure because, along with Gazprombank, it is one of the main channels for payments for Russian oil and gas, which EU countries have been buying despite the conflict in Ukraine.

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The latest step could mark a watershed moment for the EU, which remains dependent on Russian oil and gas as energy prices soar.

The EU Executive Commission on Wednesday proposed to cut Sberbank and two other Russian banks – named by two EU sources as Credit Bank of Moscow (CBOM.MM) and Russian Agricultural Bank – from the Society for Worldwide Interbank Financial Telecommunications (SWIFT). ).

SWIFT is the messaging system that underpins global financial transactions. Being removed from SWIFT makes it very difficult for a creditor to make or receive international payments.

Sberbank did not immediately respond to a request for comment. The lender, which pulled out of nearly all of its European markets in early March, previously said new sanctions would not have a significant impact on its operations.

Russia’s economy, including most of its banks, has been subject to broad Western sanctions since the start of what Moscow calls a “special military operation” in Ukraine on Feb.

The punishments imposed by several western capitals saw Russian banks immediately frozen out of the global financial system in which they were well integrated.

In early March, the EU named seven banks that would ban SWIFT: Russia’s second largest bank, VTB (VTBR.MM), along with Bank Otkritie, Novikombank, Promsvyazbank (PSKBI.MM), Bank Rossiya, Sovcombank and VEB. . read more However, creditors dealing with energy payments were spared.

Britain sanctioned another wave of Russian banks in late March, including Gazprombank and Alfa Bank. see More information

After Ukrainian and US officials accused Moscow of committing war crimes in the city of Bucha, near the capital Kiev, in early April, the US also imposed a new round of sanctions on Russian banks.

These measures saw Sberbank, which holds a third of Russia’s total banking assets, and Alfa Bank, the country’s fourth-largest financial institution, subject to “full lockdown sanctions” that would freeze all of their assets “touching the financial system.” from the USA”. House said at the time. see More information

SWIFT connects over 11,000 entities worldwide and is the dominant messaging system for cross-border transactions, with recipients contractually responsible if they fail to respond to secure messages.

Russia has become one of the main users of the system, having a seat on the board since 2015 and with more than 300 Russian banks using it as their main method of communication with national and international banks.

Asset manager Fidelity International warned last week that banning banks from SWIFT could lead Russia to create a parallel system, hampering globalization. However, some experts said that SWIFT can be difficult to replace, especially in the short term. see More information

While the exact impact on Russian banks being removed from SWIFT is difficult to assess, the impact of the sweeping measures is being felt across the financial sector and is unnerving for the customers of these lenders.

“Today, even banks that have not been formally cut from SWIFT are facing substantially slower transactions through this system,” said Roman Prokhorov, head of the Association for Financial Innovations. “Often there are returns of funds from beneficiary banks and correspondent banks just for no reason, because of the Russian origin (of the banks).”

Russian banks can switch to a messaging system developed by the central bank of Russia – System for Transfer of Financial Messages (SPFS). Last year, the central bank reported that domestic interbank traffic could be easily transferred to this platform.

However, it lacks international connectivity and operates only during weekday working hours, while SWIFT operates 24/7. Additionally, SPFS messages have size limits that make them less capable of handling more complex transactions.

Russia’s central bank announced in mid-April that it would no longer publish the names of banks connected to the SPFS. see More information

Russian banks can also connect to China’s CIPS payment platform. However, this can only be used to settle payments in yuan and relies on the SWIFT network for its operations, so piggybacking on CIPS could also be seen as a violation of a SWIFT ban, according to analysts.

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Additional reporting by Jan Strupczewski, Francesco Guarascio and John Chalmers in Brussels, Elizabeth Howcroft, Tom Bergin and William James in London, Nandita Bose, Matt Spetalnick and Alexandra Alper in Washington Edited by Gareth Jones

Our Standards: The Thomson Reuters Trust Principles.


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