Russia is becoming increasingly dependent on Chinese banks as its yuan borrowings more than quadruple

• Russia's deepening isolation from the West is dramatically reshaping its economy.
• Chinese banks have offered billions of dollars to Russia as sanctions pressure Western lenders to exit the country.

As Western banks slash their exposure to Russia, Chinese lenders are stepping in to fill the hole.

The volume of renminbi-backed loans to Russian financial institutions has more than quadrupled since Moscow's invasion of Ukraine in February last year.

China's 'Big Four' banks increased their combined exposure to Russia from $2.2 billion to $9.7 billion in the 14 months through March 2023, the Financial Times reported.

The increased usage of the renminbi in Russia's banking sector is in line with the nation's continued efforts to reconstitute its reserves with alternatives to the dollar.

"The loans by Chinese banks to Russian banks and credit institutions, which are for the most part a case of the yuan taking the place of dollars and euros, show the sanctions are doing their job," Andrii Onopriienko, deputy development director at the Kyiv School of Economics, told the FT.

But despite the gradual winding-up of Western trade in Russia, President Vladimir Putin is making it increasingly difficult for foreign firms to withdraw their operations from the state.

On Friday, Russia's deputy finance minister Alexei Moiseev demanded foreign banks unfreeze Russian assets if they want to exit the market, Reuters reported.

"We have stated our position, and it stands — we will be tough in letting foreign banks go, it will depend on the decision to unfreeze Russian assets," he said at a forum.

The rise of renminbi-backed funding also highlights Russia's increasing reliance on China for economic support.

Last year, trade between the two UN Security Council members reached a record $190 billion and this figure continues to rise.

Russia is now the world's No. 1 buyer of Chinese cars, after western manufacturers exited the country in response to the war.

And as members of the BRICS group, the two nations have long sought to reduce reliance on the US dollar – though the feasibility of this has been questioned by experts.

"But whatever the pace of de-dollarization, we will not completely abandon trade settlements in 'hard' currencies — even for gas, Russia continues to receive in foreign currency," Russia's former minister of finance Mikhail Zadornov wrote in a local opinion piece last week.

"That is, complete withdrawal from dollars and euros, their absence in the domestic market — it is both impossible and irrational."