Many of the largest Russian banks are under the sanctions regime. The main foreign-owned commercial banking institutions in Russia include: Raiffeisen Bank (Austria), Unicredit Bank (Italy), Citibank (U.S.), HBSC (UK), and Deutsche Bank (Germany).
Financing solution can be a crucial advantage
For Russian firms, import financing is a challenge. Despite improvements over the last several years, the Russian banking system does not meet the real economy’s capital and credit needs. The banking services available from Russian banks are still limited and expensive compared to what is available in Western Europe. For instance, high interest rates are one of the main hurdles for Russian importers. Therefore, it can be a crucial advantage, if you can offer your counterpart a financing solution for your delivery. In order to do that, foreign companies doing business in Russia can access an expanding range of basic services offered by larger commercial banks.
Currency control legislation has been liberalized considerably in Russia in comparison to earlier years. For payments related to the import of goods, there are no significant restrictions. However, the bank of the Russian importer is obliged to ensure compliance of payments with currency regulations. Therefore, the Russian importer and its bank set up a transaction passport for each contract. The foreign exporter is not directly involved, but may be affected due to the need for the Russian importer to obtain documents and information from the exporter.
Support for Swiss exporters from the Swiss Business Hub Russia
For Swiss exporters, as a first measure, we recommend checking your counterpart in the companies register. If you do not have access to such registers, the Swiss Business Hub Russia will be pleased to assist Swiss and Liechtenstein companies. Just send us the TIN (tax identification number, INN in Russian) and we can find initial automatically generated information on the company. However, we have to underline that this information does not guarantee the creditworthiness of a company, as well as a bad rating does not automatically mean that the company is in an unhealthy state. Many distributors, for instance, use a wide network of officially unrelated companies, and therefore the credit score of one single company might not be representative for the business as a whole. However, it can help you to quickly detect an obvious fraud or it can give you first information about the transparency and the financial state of your counterpart.
Depending on the business model, the relationship with the Russian partner, and the size of a given deal, different payment and trade & project financing methods have proven to be efficient. For new business relations and smaller amounts, requesting an advance payment from a Russian customer may be a prudent course to follow until both parties establish a positive record of payment. Russian companies are quite used to the fact that they have to make advance payments for the complete delivery.
For larger transactions, an advance payment from a Russian buyer may be impractical. In such cases, financing may be provided by a bank, export credit agency, or venture fund. Exporters’ risk can be minimized with a bank or insurance guarantee from a Russian bank that would be acceptable to a Swiss bank.
Export financing through Swiss banks
When it comes to financing exports, companies usually turn to their principal bank. Most bigger Swiss banks have existing relationships to the Russian financial sector. However, the number of financial services and correspondent banks in Russia might be limited. If your bank cannot support you in your export business with Russia, there are specialized banks with a proven track record. Among them Commerzbank Schweiz, a bank of German origin which focuses on financing businesses all over the world with special emphasis on Eastern Europe and SME clients. Another option could be the Swiss subsidiary of the Russian banking giant Sberbank, which has its focus on commodity trade financing, but is currently actively developing its export & import financing services (however, they require a certain minimal amount).
Trade financing instruments offered by banks
In general, for exports to Russia, banks offer the usual range of trade financing instruments to mitigate the risks related to payments between importers and exporters:
- Letter of credit (L/C) (import L/C, export L/C, standby L/Cs)
- Documentary collections
- Pre-export finance
- Supplier credit
- Receivables discounting and forfaiting
- Import and export loans
- Bank payment obligations.
- Supply chain finance (SCF)
In addition to these instruments, various non-bank-intermediated trade finance products aimed at reducing payment risks and providing access to working capital are also available.
- Inter-firm trade credit (either on an open-account basis or on a cash-in-advance basis)
- Export credit insurance from private insurance firms (typically for shorter-term financing)
- Export credit insurance from public export credit agencies, like SERV, the Swiss export risk insurance. SERV products help exporters to mitigate non-payment risk via an export credit insurance or a guarantee. These instruments typically insure against default by the importing firm and political risk. Banks may also seek ECA guarantees for particular international trade transactions to mitigate risks of non-payment from other banks or customers. Additionally SERV’s solutions also help companies to obtain low-interest loans (AAA rating of SERV) or higher credit limits.
When to consider a credit extension
After a certain history of successful export operations, Swiss firms may consider extending credit as a way to bolster sales volume. This should be done with caution and only after careful evaluation and establishment of successful payments. One of the commonly used payment terms for international transactions in Russia is 30/70, meaning 30 percent due at the time of order/invoice, and 70 percent due upon shipment. More information can be found here.
Leasing programs as an alternative: what to consider?
Leasing has become increasingly popular. It is attractive for both sides because of its economic effectiveness, flexibility and accessibility in comparison to bank financing. Many large Russian banks have leasing programs. Furthermore, there is a growing list of foreign leasing companies operating in Russia that offer Russian clients leasing terms for imported equipment, especially in the aviation, energy, mining, construction, transportation, pharmaceutical, forestry and fishing industries. In leasing deals, exporters should insist on an upfront payment of three to four months upon delivery to mitigate risk.
Although Switzerland has not imposed any sanctions against Russia, there are certain measures in place to secure that sanctions cannot be circumvented via Switzerland. The financial restrictions are regulated in paragraph 2 of the relevant decree and Swiss companies must ensure that they are not violating the regulations when giving credit to one of the companies included in the relevant list.