According to the Central Bank, in December 2015 subsidiaries of China's leading credit institutions – Bank of China, China Construction Bank, and Agricultural Bank of China – began to withdraw assets from the Russian Federation. The largest outflow was observed in the Russian subsidiary of Bank of China, which is specializing in the export-import relationships between Russia and China (100% owned by one of the largest Chinese banks – Bank of China; controlled by the Chinese government). In December, assets of the Russian subsidiary of Bank of China decreased by 31% from 55.9 billion to 38.6 billion rubles, in November-December – by 45.3%. As a result, the bank has moved from 89th to 124th place in the rating of banks operating in the Russian Federation.
Assets of the Russian subsidiary of state China Construction Bank in December decreased by 17.3% – to 20.3 billion rubles. China Construction Bank (178th place in terms of assets) operates in Russia since 2013. The main beneficiary of the bank is the Ministry of Finance of the People's Republic of China (57.14%).
The assets of the Russian subsidiary of Agricultural Bank of China, which was opened in Russia in 2014, decreased by 1.7% – to 4.1 billion rubles. The bank lost five positions and moved to the 398th place in terms of assets in the rating of banks in Russia.
Only the assets of the Russian subsidiary of ICBC Bank (100% owned by the Chinese state Industrial and Commercial Bank of China) increased: by 3.9%, to 70.6 billion rubles. The bank is now at 90th place in terms of assets; this month it still lost five positions.
‘We do not react to Russia's conflict with Turkey,’ said to Izvestia the representative of the Russian subsidiary of Bank of China. ‘Reduction of the bank's assets in December 2015 was due to the fact that Russian legal entities had been taking money from the accounts opened in the bank. This is their right, we have fulfilled their wishes.’
The other banks have not responded to the request of Izvestia.
According to the Director of Analytical Department at Okay Broker IC, Vladimir Rozhankovsky, many Chinese banks were involved in subprime loans and now they are re-evaluating their assets (mark-to-market).
‘The main field of Chinese banks' losses is loans for housing construction, prices of which have recently been known to spread downwards, thus making many developers insolvent,’ explains Rozhankovsky. ‘The December decline in assets of subsidiaries of Chinese banks is tangible and we can already assume that the regulator of China will have to capitalize them, say, at the expense of national reserve funds. Strangely enough, in our opinion, is the fact that the People's Bank of China still has not announced the start of the program of their stress testing. Regarding Russia, I can only say that there has never been a powerful Chinese financial lobby, and one can hardly even remember a single Chinese bank which had in the meantime entered the domestic retail market full-scale. These banks generally only worked as financial agents for major cross-country projects, for the most part they are frozen. Therefore, we do not see any significant negative consequences for the Russian Federation from such an outcome.’
Head of Methodological Department at National Rating Agency, Maxim Vasin, agrees that the reduction of assets of subsidiaries of Chinese banks in the Russian Federation is noticeable.
‘Such a significant reduction is usually possible if the assets are short-term or invested in liquid financial instruments that can be sold quickly. With the reduction of oil prices and the growth of the exchange rate against the ruble in December, Chinese banks obviously overestimated the prospects for the Russian economy for the worse and began to reduce the risks for Russian assets,’ suggests Vasin.
According to the expert, an additional factor was the worsening of the situation in the stock markets of China, which continued in January 2016, – in these circumstances, China's banks could decide to wind up expansion abroad, especially in countries with unstable currencies.
‘If you look at what macroeconomic forecasts were voiced in November (peak (bottom) of the crisis is passed, in 2016 the growth is expected) and what is now forecasted (growth will start from 2017, further decline in oil prices is possible, etc.), as well as at the situation in the currency market (no one predicted in December 80 rubles to the dollar), this situation explains the reluctance of the Chinese subsidiaries to take risks of the Russian economy in the current environment,’ says Vasin. ‘Perhaps, when the situation is equalized, when disappears instability associated with oil and currencies, and the dynamics of the economy will move into positive territory, Chinese banks again will want to increase their presence here. Financial relations between Russia and China are obviously not deteriorated: still discussed joint projects within the framework of SCO, BRICS bank, switching to national currencies in trade.’
‘Compared with 2014 year, the assets of Chinese banks as a whole grew by 15.5%, to $29.7 trillion,’ said a Board Member at Delovoy Profil ACG, Armen Danielyan. ‘Assets growth was influenced by a systematic reduction in the key rate of the People's Bank of China and the reserve requirements, the depreciation of the national currency. In January 2016 alone, there was another large-scale devaluation of the yuan, which hit almost all the world's stock markets, which will also contribute to the further growth of the nominal value of assets of China's banking system. In contrast to the general trend of development, we note the reduction in assets of Chinese banks operating in Russia, which is caused by their natural desire to limit themselves from the effects of Russian political and economic risks.’
Head of Analytical Management at BKF Bank, Maxim Osadchy, says that the ‘turn to the East’ has ended.
‘Russian companies and banks have not been able to replace Western loans in China and other Eastern countries. Chinese banks and banks of other Eastern countries did not rush headlong into Russia. And those Chinese banks that already operate in Russia, are mostly stagnant. The more so because China has its own worries – China's economy cools down, GDP growth is slowing down,’ Osadchy says.
Managing Partner of 2K auditing company, Tamara Kasyanova, on the contrary, believes that its too early to talk about a complete withdrawal of assets from Russia by Chinese banks.
‘The negative trend in the last two months of last year showed the Russian subsidiary of Bank of China, whereas other Chinese banks have reduced the assets only in December,’ says Kasyanova. ‘Moreover, the amount of assets of Russian subsidiaries of China Construction and Agricultural Bank of China by the end of December was higher than in early November 2015. Thus, it is premature to say that Chinese banks gradually withdraw from the Russian market. We may discuss the trends by the end of the 1Q of 2016, when trends will be more clear. The relations between Russia and China are developing in the same direction.’
Along with the Russian subsidiary of Bank of China, in the top 10 of banks whose assets decreased most significantly, were four foreign credit institutions: ING Bank (the subsidiary of a Dutch bank with the same name), Credit Agricole CIB (controlled by the French Credit Agricole Group), OTP Bank (controlled by the Hungarian OTP Bank), and Is Bank (the subsidiary of Turkish Turkiye Is Bankasi Anonim Sirketi).