How Annexation Has Changed the Crimean Banking System
13 September, 2018

As of August 14, one of the largest banks in Crimea, Genbank, terminated international services for cardholders with Visa and MasterCard.

The Crimean Genbank, which, as of 2015 came under sanctions from the United States and European Union, was the last bank on the peninsula to offer international payment services. Crimeans now have to use the Russian national payment system called Mir (“Peace” or “world” in Russian).

Hromadske has gathered some information on how the banking system has changed in Crimea since it was illegally annexed by Russia in 2014 and which cards the peninsula’s residents can use now.

Changes to the Banking System

In 2014 at the time of the annexation, there were over 1,000 branches of 180 commercial banks, as well as branches of two small Crimean banks – Morskoy Bank and Black Sea Development and Reconstruction Bank – on the peninsula. Crimeans had close to $708 million in these banks.

After the so-called referendum, which saw Crimea illegally annexed into the Russian Federation, the National Bank of Ukraine banned all financial operations on the territory of the peninsula and also suspended operation of Ukrainian banks in the occupied territories.

These Ukrainian banks then left Crimea. The big Russian banks also followed suit in fear of sanctions. This included Sberbank, VTB and Bank of Moscow. Only Crimean Morskoy and Black Sea Development and Reconstruction Bank remained.

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As a result of these same sanctions, the Russia-appointed occupation government in Crimea thought up a scheme to create a supposedly independent Crimean bank – the Russian National Commercial Bank (RNCB). Before the annexation, this was a loss-making subsidiary bank of the Bank of Moscow. However, after annexation, it became the property of the so-called Crimean government.

RNCB took over the branches once belonging to Ukrainian banks, mainly those of PrivatBank. Canada, the E.U. and subsequently the U.S. immediately imposed sanctions against RNCB. However, this did not affect the way these branches operate as the bank was created artificially “under Crimea” and only operated within the territory of the peninsula.

Not long after that, other small, mainly regional, Russian banks started appearing in Crimea. For example, the Buryat regional bank BaikalBank, which went bankrupt in 2016, along with others of a similar kind.

According to the monitoring group Maidan of Foreign Affairs and the news portal Black Sea News, out of the 34 Russian banks that appeared on the peninsula after annexation, only eight remain as of August 1, 2018.

Rossiya Bank is the largest of the Russian banks in Crimea. It opened 19 branches on the peninsula, but, at the same time, lost around $43 million in private deposits as a result of sanctions the U.S. imposed against them in March 2014.

Which Payment Systems Remained?

Crimeans lost the ability to use Visa and MasterCard cards after the annexation. They were not accepted in shops and did not work in the ATMs. Visa and MasterCard announced they were terminating services in Crimea in December 2015. The money transfer service PayPal also terminated operations in the occupied peninsula.  

After Visa and MasterCard ceased operations on the peninsula, and any kind of card payments became impossible, Crimeans started to think up various schemes to facilitate cash transfers. Adverts for new kinds of services started appearing on walls and fences in Crimea, which surprised a lot of the peninsula’s more modern-minded residents.

Bank cards became useless pieces of plastic in Crimea. Some resourceful Crimean businessmen offered to solve this problem for a percentage of around 3-10%. The percentages depends on the sum of money. The lower the amount, the higher the percentage: 10% for 10 thousand rubles (around $145), 9% for 10 to 20 thousand rubles ($145-$290) etc.

To use this service, you need a bank card from a large Russian bank, the cardholder’s passport, and a telephone number attached to that bankcard, on which you receive confirmation of the internet payment. You then arrive to a mock ATM to buy some “goods” (which in reality are cash). The bank sends you a text message to confirm the transaction and you receive cash-in-hand.

The closure of Visa and MasterCard services on the annexed peninsula also made RNCB come up with a new payment system. The internal PRO100 system became the new alternative the international giants. This is a Russian payment system and its processing center belongs to Sberbank Russia. RNCB started issuing cards with these payment systems in May 2014. These cards can only be used in Russia and occupied Crimea. These cards do allow for international payments.

Photo credit: Nataliya Gumenyuk/HROMADSKE

Crimeans were in no hurry to switch to this dubious payment system, but after Visa and MasterCard stopped international payments, they had to come to terms with using Russia’s state payment system. For many, PRO100 became the only way to get money from cash machines.

Over time, however, the Mir payment system overtook PRO100. Crimeans, who practically all used PRO100, encountered numerous problems, mainly in Russia. It became very difficult to use these cared in shops outside Crimea. ATMs did not accept them either, and if they did, they took a high percentage in commission.

Crimea moved to the Mir system on August 15. This system was introduced on the peninsula in spring 2016. RNCB have issued close to 1.7 million cards to Crimeans.

However, Visa and MasterCard cards issued by other Russian banks continue to be used on the peninsula, particularly in Crimean Genbank ATMs.

Visa and MasterCard transactions in Crimea appear as transactions completed in the Krasnodar region of Russia.

What Do the Residents Say?

For many Crimeans, the cuts to Visa and MasterCard service has made managing payments more complicated, but they have found ways to cope.

Crimea resident Oleksandr says that his Russian Sberbank works in shops and gas stations, but he has “great difficulty” withdrawing cash from ATMs. He also manages to use international payments, but they appear as transactions made in the Krasnodar region of Russia, which he refers to as a “trick” the Russian banks’ IT specialists came up with.

Serhiy, who now lives in Kyiv, says that he never uses his Ukrainian cards on the peninsula. He also has problems buying items on online. He had to use his father’s pension card, which has the Mir payment service, when buying a book online from Moscow.

“In other regions of Ukraine, apart from Crimea, I use my PrivatBank card. But getting hold of one is not so simple. I only got one after a filling out an immigration form. Otherwise, you go without a card,” Serhiy adds.

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Fellow Crimean Iryna, however, says its difficult to tell how convenient the system change has been, as she has never tried to use her card outside of Crimea. In fact, she says that she has not witnessed any major problems as a result of Visa and MasterCard’s exit from Crimea. Although that may be because of the particular region she lives.  

“I’ve not seen any angry mobs in the city as a result of the news that Genbank has closed its Visa and MasterCards services. They all work as normal,” Iryna notes adding that “But judging by the fact that this is a holiday resort region, and people somehow withdraw money from other accounts, it’s likely that the system is bypassed somehow.”

Similarly, Ivan, who has two Mir cards and a Visa card also says that he has not had any problems using his international card on the peninsula and has been able to withdraw. But, as a Ukrainian passport-holder, he has had problems with loans. And he says the Russian banks only give out debit cards and not credit cards to non-Russian citizens.  

“In the eyes of the Russian banks, we are either non-citizens or dual citizens. They don’t give credit cards to Crimeans with Ukrainian passports.” Ivan explains. “They are afraid that we’ll take the credit and go to Ukraine. Crimean banks only give them to those ‘on the leash’ and won’t go anywhere in a hurry: civil servants, military personnel, police etc.”

/Translated by Sofia Fedeczko