BRICS's countries banks to open branches in Russia

The Russian authorities are considering a proposal to allow foreign banks who are not associated with unfriendly countries to open branches in Russia this year. The initiative is supported by all participants in the discussion, according to Deputy Chairman of the Central Bank Alexei Guznov, who told Izvestia that this measure could come into effect as early as 2024.
The head of the State Duma Committee on Financial Markets, Anatoly Aksakov, named the same deadline. The Ministry of Finance has submitted a bill with this proposal to the government in July. Despite the long-standing prohibition on the opening of branches by foreign credit institutions in the Russian Federation, the situation has now changed. This innovation will facilitate cross-border payments under sanctions, simplify the opening of accounts in foreign banks for Russian businesses and facilitate import substitution, according to experts.

All participants in the discussion agreed that foreign financial institutions not associated with unfriendly states should be allowed to open branches in Russia, according to the Deputy Chairman of the Central Bank Alexei Guznov. He said that the final at the details still need to be sorted out, and work is currently underway on this.
"We are making every effort to ensure that the bill is submitted [to the State Duma] in the near future. The topic is important," the deputy chairman of the regulatory body emphasised.

Mr. Guznov stated that the bill is likely to be introduced by the government. He also indicated that it could be enacted before the end of this year.
The proposal was also endorsed by Anatoly Aksakov, the head of the State Duma Committee on Financial Markets. He stated that the State Duma will likely commence deliberations on the project during the forthcoming session. Additionally, the innovation does not necessitate significant amendments. The legislation may be enacted as early as 2024, the deputy confirmed.

In early July, the Finance Ministry submitted to the government a bill that allows foreign banks from friendly countries to open branches in the Russian Federation. This was confirmed by the ministry's press service to Izvestia. The measure is aimed at expanding cooperation and creating joint investment projects with such countries.
A complete ban on opening branches by foreign credit institutions in the Russian Federation has been in effect since March 2013. At that time, President Vladimir Putin excluded the concept of branches from the definition of the banking system through legislative means. The rationale for this was that such structures cannot be fully controlled by Russian regulators and are not required to meet reserve standards and fully report to the Bank of Russia.

This could provide competitive advantages to foreign players. Prior to this, the ban on opening branches of foreign banks existed at the level of a departmental resolution of the Central Bank of the Russian Federation.
Previously, foreign players occasionally operated through branches, but this was not the most popular solution. For instance, in 2006, the Kazakh Halyk Bank opened a branch, as noted by Yaroslav Kabakov, Strategy Director at Finam Investment Company.

However, following the introduction of a ban on operating on the Russian market, foreign credit institutions were required to establish subsidiaries that were fully subject to Russian legislation and operated under the control of the Central Bank. This was noted by the founder of Anderida Financial Group, Alexey Tarapovsky.
Since 2013, the situation has changed significantly, as emphasised by Ivan Uklein, Senior Director for Bank Ratings at Expert RA. Due to the restrictions on international payments and the risks of secondary sanctions that have been in effect since 2022, even partners from friendly countries are wary of investing in the Russian financial sector. However, opening a branch requires much less investment, but allows for almost the entire range of settlement transactions.
At the same time, the Bank of Russia's control tools have improved significantly over the past 11 years. Consequently, the risk of losing control is reduced to an absolute minimum, while facilitating international settlements for Russian business becomes a key priority. This is according to Ivan Uklein.
Furthermore, branches of foreign banks will help make cross-border payments without the need for unnecessary intermediaries. This is according to the founder of the investment company SharesPro, Denis Astafyev. He believes this will help reduce transaction costs and increase the speed of operations. The solution will also simplify parallel imports, which will give impetus to the development of domestic business, according to the expert. He added that this will be useful in many areas, including the market for equipment and materials.
In 2022, the largest Russian banks were disconnected from SWIFT. Furthermore, the EU sanctions package of 14 June prohibited European organisations from connecting to the Russian analogue of SWIFT – the Financial Messaging System (SPFS). Furthermore, since the end of 2023, the West has intensified its monitoring of compliance with restrictions, which has led to difficulties for Russian businesses in making payments to banks in China, Kazakhstan, Turkey and the UAE.
Domestic credit institutions are unable to provide certain services due to sanctions. However, opening branches with limited functions in the Russian Federation by foreign players could significantly simplify international settlements for Russian companies, according to Valery Piven, Managing Director and Head of the Financial Institutions Ratings Group at ACRA. For instance, domestic businesses would be able to open accounts in foreign banks more easily, as Alexey Tarapovsky from Anderida Financial Group noted. A branch would help avoid the problems of personal presence.

Yaroslav Kabakov, Strategy Director at Finam Investment Company, believes there are other positive aspects of such a decision. For example, it will help attract additional resources and modern technologies to the Russian economy. The expert estimates that such an innovation will increase the capital inflow by $15–20 billion per year.

Mr Kabakov also believes that competition in the banking sector will increase. This could result in lower interest rates on loans and easier access to financing for small and medium-sized businesses. However, there is a risk that foreign banks will be wary of secondary sanctions, so they are not in a hurry to open branches. On the other hand, credit institutions from countries with strong economic ties to the Russian Federation, such as China, India and the CIS countries, will probably be more interested in entering the Russian market.

If the bill is adopted in the near future, the first branches could appear in Russia by the end of this year or early next year, according to the expert. Denis Astafyev from SharesPro agrees with this.

Banks from China, India and the Middle East will be most interested in opening new structures in Russia, according to Maxim Zakharov, managing partner of the law firm Bishenov&Partners. He added that these are the countries currently seeking to expand their presence in international financial markets.