China-based AIIB freezes loans to Russia and Belarus over war in Ukraine

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The Asian Infrastructure Investment Bank has suspended all open and pending deals involving Russia and Belarus following the outbreak of conflict in Ukraine.

Development bank move threatens to strain ties between China and Russia, who are close trading partners but whose ties have come under scrutiny following Vladimir Putin’s military operation in Ukraine. China is the bank’s largest shareholder.

The Beijing-based bank said on Thursday it would “preserve its financial integrity” and assess the impact of the war in Ukraine on its operations and the savings of its members.

The AIIB was founded with an official position of political neutrality. However, his decision to freeze loans to Russia and Belarus demonstrates the growing pressure on global financial institutions to cut ties with Russian projects and individuals during the war in Ukraine.

The New Development Bank, a Shanghai-based lender in Asia with much higher exposure to Russia, also announced on Thursday that it had suspended new transactions in Russia in light of the Ukraine dispute.

This week, China signaled that it was ready to play a role in securing a ceasefire in Ukraine, adding that it “deplored” the outbreak of conflict in its strongest comments so far. day on the war. It is the main shareholder of AIIB, with 26.5% of voting rights.

“We, the management, will do our utmost to preserve the financial integrity of the AIIB, in the context of the changing economic and financial situation,” the bank’s statement said.

Russia is the AIIB’s third largest shareholder after China and India, and in October the AIIB announced that it would hold its seventh annual meeting in the country. About 3% of its total loan portfolio is in Russia.

AIIB made its first investment in Russia in 2019 with a $500 million loan to finance a transportation and infrastructure project. Last year, he approved a €116 million project to fund improvements to the Belarusian health system. However, the decision was criticized by NGOs in the country due to a political crisis under the regime of Alexander Lukashenko. The president allowed Belarus to be used as one of Russia’s launching pads for the invasion of Ukraine.

Along with contributions from its members, the AIIB – which has $100 billion in registered capital – has raised funds in the bond market and has four outstanding ruble-denominated bonds that have all collapsed. The bank’s 2025 bond fell from more than 80 cents on the dollar two weeks ago to less than 50 cents on Thursday.

Still, analysts at S&P Global Ratings said they don’t expect Russia’s war with Ukraine to hurt the AIIB. “It’s a very small exposure that the AIIB has [to Russia]said Alexis Smith Juvelis, analyst at S&P. “The relative impact this might have on capital or on the ability to fulfill its mandate is not as significant given that the AIIB has a more holistic approach.”

When the bank officially began operations in 2016, it was widely seen as a complementary financing arm of President Xi Jinping’s Belt and Road Initiative, a global infrastructure development strategy. Its top management includes Danny Alexander, former chief secretary to the UK Treasury.

The AIIB drew criticism when it said it would continue funding projects in Myanmar after the military junta toppled the administration of Aung San Suu Kyi last year and cracked down on protesters. Both the World Bank and the Asian Development Fund suspended funding to Myanmar after the coup.

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