Russia launches new defense bank to shield lenders from sanctions

MOSCOW (Reuters) – Russia will create a state bank to service the defense sector, the finance ministry said on Thursday, after a tightening of U.S. sanctions heightened the risks for existing Russian lenders in handling defense deals.

The United States imposed new sanctions on Russia last year in response to Moscow’s alleged meddling in the 2016 U.S. presidential election, a charge the Kremlin has repeatedly denied.

The new U.S. law called for sanctions on businesses or people who have engaged “in a significant transaction” with Russian defense or intelligence agencies, a condition that could result in a number of Russian banks being black-listed.

Some of Russia’s largest lenders, including Sberbank (MM:) and VTB (MM:), are already subject to sanctions which restrict their ability to borrow abroad.

But bankers and officials have privately voiced concerns that their work with the Russian defense sector leaves them vulnerable to further penalties and called for a special bank to finance Russia’s military industry.

The finance ministry said the new bank, which it did not name, would work to support state defense orders by providing financial services and lending.

“The new bank … will be optimally suited for the role of a core bank in dealing with state defense orders and major government contracts,” it said in a statement.

The ministry did not say when the bank would be created, but said it would soon conclude the “necessary corporate procedures to transfer the bank into the ownership of the Russian Federation.”

The Russian central bank has in the past published a list of banks that provide services to the defense sector. Banks on the list include Sberbank, VTB and Russian Agriculture Bank, along with Gazprombank and privately-owned Rossiya.

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