Russia faces financial ruin as Putin’s ‘systemically critical’ bank dumped from SWIFT

Joe Biden says sanctions have ‘crippled’ Russian economy

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Sberbank, which is by far Russia’s largest lender, will be joined by major banks the Credit Bank of Moscow and the Russian Agricultural Bank following agreement from the EU. President of the European Commission Ursula von der Leyen said the measures would “hit banks that are systemically critical to the Russian financial system and Putin’s ability to wage destruction.” A number of Russian banks, including its second-largest bank VTB, have already been pushed off SWIFT, however so far the EU has resisted removing banks such as Sberbank which handle energy payments. This is set to become a less important factor with today’s new sanctions including the news the EU will also begin phasing out Russian crude oil imports over the next six months.

With Sberbank accounting for around 37 percent of Russia’s banking sector disconnection from SWIFT deals a major blow to an already fragile economy increasingly cut off from mainstream finance.

While not a transfer system in itself SWIFT provides messaging services to support and authorise payments making it essential for financial institutions to function.

Typically it processes over 40 million messages per day.

Ms von der Leyen said disconnecting “systemically critical” Sberbank would “solidify the complete isolation of the Russian financial sector from the global system”.

Speculation has mounted however that Russia will seek refuge in alternatives to SWIFT.

Russia has its own ruble based system called the System for Transfer of Financial Messages (SPFS) which it previously set up in 2014.

Meanwhile another option could China’s Cross-Border Interbank Payment System (CIPS).

SPFS is currently used by most Russian banks as well as around 52 foreign organisations from 12 countries, although Russia’s central bank has refused to name current users.

Russia has been trying to encourage integration of their system with those of other emmerging economies, particularly the BRICS grouping of Brazil, Russia, India, China and South Africa.

At a recent BRICS ministerial meeting Russian finance minister Anton Siluanov warned of the threat posed by sanctions to world financial systems, explaining it “pushes us to the need to speed up work” in areas such as “the integration of payment systems and cars, our own financial messaging system”.

In particular Russia has been tring to work with China to establish connections between there two systems which could help support payments in Asia.

China has also been accused of continuing to buy cheap Russian oil despite the threat of breaking sanctions.

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According to the Financial Times some independent refineries are discreetly buying the oil and not publicly reporting it to avoid scrutiny and US sanctions.

State owned firms meanwhile have largely avoided signing new contracts.

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