Chinese banks have significantly increased their financial support for Russian banks and provided billions of dollars in funding after the Russian system was cut off from the SWIFT messaging service a few days after the invasion of Ukraine, the Financial Times reported on September 4.

Initially shy of working with Russian banks, afraid of bringing down US secondary sanctions on themselves, the increased business with four of China's largest banks is seen as part of Beijing’s broader strategy to promote the use of yuan internationally as an alternative to the US dollar.

Data analysed by the Kyiv School of Economics for the Financial Times reveals that China's exposure to Russia's banking sector surged by four times in the 14 months leading up to March this year. This increase coincided with Western banks facing regulatory and political pressure to exit Russia due to international sanctions.

The Chinese banks involved include the state-owned Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank and Agricultural Bank of China, which collectively increased their exposure to Russia from $2.2bn to $9.7bn during this period. ICBC and Bank of China were responsible for $8.8bn of these assets, the FT reports.

In comparison, Austria's Raiffeisen Bank, the foreign bank with the largest exposure to Russia that has been very reluctant to leave, raised its assets in the country by over 40%, from $20.5bn to $29.2bn in the same period.

Since the imposition of the SWIFT sanctions, Russia’s financial system has gone through a rapid yuanization largely replacing the dollar with the Chinese currency where dollars used to be used, particularly in trade and as a sovereign reserves currency. Dollars have already been expunged from Russia’s international reserves and the Central Bank of Russia (CBR) says that the other “toxic currencies” are likely to fall to zero by the end of this year.

Before the invasion, the majority of Russia's export payments were made in toxic currencies like the dollar and euro. However, the renminbi's share has grown to 16%, while the proportion of toxic currencies has declined.

Overall, the percentage of Russian banking assets held by foreign lenders dropped from 6.2% to 4.9% in the 14 months leading up to March.