Japan to lend to sanctions-hit Russian bank
TOKYO -- The government-backed Japan Bank for International Cooperation will provide about 4 billion yen ($38.5 million) in financing to Sberbank of Russia, a lender subject to Western sanctions, in hopes of advancing talks on a territorial dispute at a December summit.
Sberbank, Russia's largest bank, will furnish the funds from the yen-denominated loan to a company operating the port of Vostochny in the Russian Far East. The port operator will use the money to buy coal-handling equipment. This so-called two-step loan reduces the risk to JBIC, which will issue the loan by the end of this year.
JBIC as a rule provides joint financing with private-sector partners. Though it has extended loans on its own in the past, to companies strapped for cash in the wake of the 2008 global financial crisis, the Sberbank loan is still an outlier in this regard.
The U.S. and the European Union have effectively banned lending to certain Russian companies and financial institutions, including Sberbank, as part of sanctions in response to Russia's 2014 annexation of Crimea. Japan also bars underwriting of bonds issued by Sberbank and other institutions.
Though yen-denominated loans are not covered by the sanctions, Japanese banks are nonetheless leery of lending in Russia. The three megabanks had about $9 billion in loans to Russian entities on their books in fiscal 2015 -- about half the pre-sanctions level. With the Russian economy battered by low oil prices and the ruble's plunge, new lending is believed to be minimal.
"Japanese banks are avoiding dealing with [Russia] because they're worried about getting on the U.S.'s bad side," a government insider said.
JBIC is defying this trend in hopes of encouraging progress on negotiations over the Russian-controlled southernmost Kuril Islands, which are also claimed by Japan. The loan is part of an eight-point economic cooperation plan presented to Russian President Vladimir Putin by Japanese Prime Minister Shinzo Abe in May as part of a "new approach" to the dispute.
Against this backdrop, JBIC started offering ruble-denominated financing this month. To shore up the public lender's capital, the Ministry of Finance earmarked 109 billion yen in investment in JBIC in the recently approved second supplementary budget for fiscal 2016.
But Moscow's relations with Western countries are deteriorating further amid the chaos in Syria. The U.S. officially accused Russia earlier this month of orchestrating hacks against American organizations. EU leaders threatened further sanctions this Thursday, citing Moscow's support of Syrian President Bashar Assad's government, which has been engaging in a bombing campaign.
Japan, caught between the two sides, is in an awkward spot. Though a government source stressed that Tokyo is breaking no rules, economic cooperation with Moscow could still threaten the Group of Seven's united front on sanctions. With power set to change hands in the U.S. soon, Japan will need to explain its plans carefully.
And it may not even be rewarded for taking this risk. How the negotiations go will be entirely up to Putin. While the Russian president reportedly showed interest in the economic cooperation measures on offer, some in Tokyo warn that he will not be so easily swayed.