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As it ratchets up sanctions on Russia’s economy, the European Commission has proposed kicking the country’s biggest bank off the Swift global payments system that facilitates trillions of dollars worth of trade every day.
Under the plans, Sberbank — along with two other banks, Credit Bank of Moscow and Russian Agricultural Bank — would be disconnected from Swift, which acts as an interbank messaging service.
The announcements were made on Wednesday as part of a proposed package of sanctions that included a phased-in ban on imports of all Russian oil to the EU in retaliation for Moscow’s invasion of Ukraine.
“We hit banks that are systemically critical to the Russian financial system and Putin’s ability to wage destruction,” European Commission president Ursula von der Leyen told the European parliament in Strasbourg. “This will solidify the complete isolation of the Russian financial sector from the global system.”
The moves followed the decision by the EU in March to remove seven other Russian lenders — including VTB, the country’s second-biggest bank — from Swift. In total, the 10 banks account for more than 60 per cent of Russia’s banking market — with Sberbank controlling a third of the sector.
But while the western sanctions are aimed at destabilising Russia’s economy and choking off funds to Vladimir Putin’s war machine, the latest measures against the financial system will have limited impact, according to people within the sector.
Crucially, they say, Gazprombank — the country’s third-largest lender and a subsidiary of the state-owned energy company Gazprom — will be allowed to stay on Swift. The bank, which accounts for 7 per cent of Russia’s banking market, is the biggest player in facilitating payments for Russian oil and gas exports.
“Logically this means Gazprombank’s role in facilitating oil and gas payments will become stronger — this is the only Russian infrastructure bank now not under sanctions,” said a Russian banking executive.
Gazprombank has avoided being placed under EU sanctions. It was added to the UK’s sanctions list in March, but the British government has since granted a licence until the end of May that allows the bank to continue receiving payments to allow the flow of Russian gas to the EU.
The EU would still have the option of removing Gazprombank from Swift at a later date and this would cause the biggest financial damage to Russia’s exports, analysts said. But this is seen as a nuclear option in Brussels as Europe relies on Russia for more than 40 per cent of its natural gas supply and 26 per cent of oil.
Swift, a Brussels-based organisation that is owned by its members and overseen by the G10 central banks, plays a crucial role in global banking, with more than 11,000 financial institutions using the system.
Yet being removed from Swift at this stage would not hit Sberbank too badly, according to the Russian banking executive. “Given Sberbank is already under sanctions, with only a limited number of payments coming from outside Russia, I don’t see this as a big issue,” they added.
The state-controlled lender, which traces its roots back to a decree in 1841 from Emperor Nicholas I, is Europe’s second-biggest bank by number of customers with 102mn, almost all of whom reside in Russia.
While Sberbank once harboured ambitions to expand internationally, it has had to refocus on dominating its domestic market after being hit by a series of sanctions in recent months. In the hours following Russia’s invasion of Ukraine, Washington cut off Sberbank and 25 subsidiaries from the US financial system and restricted its access to US dollar transactions.
The measures led to a run on customer deposits at Sberbank’s foreign subsidiaries and the bank’s Austrian business was put into orderly liquidation on Wednesday.
The Austrian unit was the first bank to fail following sanctions on Russia, having been placed under special measures by Austria’s deposit guarantee scheme in March.
The bank employed more than 3,800 people and operated 187 branches across central Europe, with assets of €12.9bn and 770,000 customers, according to its last public corporate filings.
Sberbank did not respond to a request for comment.
Even removing Sberbank and other banks from Swift would not prevent them from carrying out cross-border transactions, but doing so would become more costly and arduous. Foreign dealings would rely on the use of less efficient communication tools, such as email and telex.
The Russian central bank has also prepared for such measures in recent years by setting up an alternative messaging system, which is widely used in Russia and by a small number of foreign lenders.
However, one worry for western bankers and financial regulators is the potential for reprisal cyber attacks on the Swift network in response to Sberbank — and potentially Gazprombank — being removed.
Last month, a senior executive at a European bank told the Financial Times: “We model for cyber attacks on institutions like the Fed, but we think a hit on Swift is more likely in retaliation for Russian banks being kicked off it. That would have huge consequences for the global banking network.”
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