By Megan Davies

NEW YORK (Reuters). This week, coupon payments on Russian sovereign bond dues were received at JPMorgan (NYSE) and processed. Citi then got an onwards Credit from the bank. According to a source, this is a sign that the country might have avoided default.

According to the source, the payment was received in U.S. dollars. According to the source, once the money was credited to the agent it would then be checked by the bondholders and sent on.

Russia stated on Thursday that the country had paid its debts due by this week. Russia would be required to make $117 million in coupon payments Wednesday for two sovereign bonds in dollars. Some creditors also received payment, according to market sources. This indicates that Russia avoided its first default on an external bond in a century.

Many saw the payments as the first sign that Moscow was able to meet its obligations, after Western sanctions had hampered its finances.

Sources said JPMorgan, as foreign correspondent bank, was obliged to make payments. However, given the facts, they also advised that authorities be consulted before making any such payment.

Moscow’s invasion in Ukraine has resulted in sanctions cutting Russia out of the international financial system. They also blocked the majority of Russia’s gold and foreign currency reserves. Moscow has retaliated, which can complicate payment.

According to the source, before processing any payment, the bank had spoken with officials. The source stated that not processing the payment would have been detrimental to bondholders.

In response to Russia’s invasion in Ukraine, U.S. banks have been barred from correspondent banking. This allows banks to pay one another, and transfer money across the globe. The ban was implemented within thirty days by Sberbank, Russia’s biggest lender. Washington and its partner countries also banned some Russian banks, which will prohibit lenders from conducting the majority of their international financial transactions.

A March 2020 report https://www.bis.org/publ/qtrpdf/r_qt2003g.pdf by the Bank for International Settlements showed that correspondent banks have been “paring back their cross-border banking relations for the past decade.” According to the report, although the payments value increased by 20% in 2018, the number of correspondent banks dropped by 20%.