Nostro Account vs Vostro Account: Understanding the Difference

Money sent by U.S. customers and businesses to GTBank account holders in Nigeria will be deposited in GTBank’s account with Citibank. For these accounts, the domestic bank is acting like a custodian or managing the accounts of a foreign counterpart. These accounts are utilized for facilitating the settlements of forex and foreign trades. The money deposited is transferred by Citibank via SWIFT to GTBank’s U.S. dollar account in Nigeria. SWIFT refers to the Society for Worldwide Interbank Financial Telecommunications, a member-owned cooperative that offers safe and secure financial transactions for its members. For both Nostro and Vostro accounts, the domestic bank (i.e., the bank holding the account) acts as the caretaker for the account and is sometimes referred to as the “facilitator” bank.

Bank B can then use these funds for its operations or convert them to another currency as needed.
Vostro accounts also support foreign banks in their foreign exchange operations and provide liquidity for their transactions in the local market.
They help banks manage their foreign currency positions and provide liquidity for cross-border transactions.
Modern retail banking is derived from 13th and 14th-century Italy, where depositors and retail banks maintained ledgers of their account balances.
These accounts are essential for facilitating indirect transactions and managing complex international trade operations involving multiple banks and currencies.
Before engaging in foreign exchange transactions or trades, be sure to contact a financial professional or broker who specializes in international transfers to help facilitate an orderly exchange of one currency for another.

Use in International Trade

When an importer in one country needs to pay an exporter in another country, the importer’s bank can use its Nostro account to facilitate the payment in the exporter’s currency. Nostro and Vostro are used when one bank has another bank’s money on deposit, typically used in international trading and foreign exchange transactions. Nostro and Vostro help differentiate between the two sets of accounting records of each bank.

What Is the Difference Between a Nostro and Vostro Account?

Loro accounts are used by banks to refer to the accounts of other banks with which they have correspondent banking relationships. These accounts are essential for facilitating indirect transactions and managing complex international trade operations involving multiple banks and currencies. In the realm of international trade and banking, the terms “Nostro,” “Vostro,” and “Loro” accounts are frequently encountered. These accounts play a crucial role in facilitating cross-border transactions and ensuring smooth financial operations between banks in different countries. Understanding the distinctions, uses, and mechanisms behind these accounts is essential for anyone involved in global trade and finance.

Nostro, Vostro, and Loro accounts are integral components of the global banking system, enabling seamless international trade and financial transactions.
Loro accounts are used by banks to refer to the accounts of other banks with which they have correspondent banking relationships.
In the realm of international trade and banking, the terms “Nostro,” “Vostro,” and “Loro” accounts are frequently encountered.
Understanding the roles and mechanisms of these accounts is essential for anyone involved in international trade and finance.

J.B. Maverick is an active trader, commodity futures broker, and stock market analyst 17+ years of experience, in addition to 10+ years of experience as a finance writer and book editor.

Vostro Account

Before engaging in foreign exchange transactions or trades, be sure to contact a financial professional or broker who specializes in international transfers to help facilitate an orderly exchange of one currency for another. The nostro account is a way of keeping track of how much of the bank’s money is being held by the other bank. This is similar to an individual keeping a detailed record of every payment in and out of his or her bank account so that she/he knows the balance at any point in time. Computerized accounting allows for easily reconciling Nostro and Vostro accounts by using “+” or “-” signs in the banks’ respective accounting systems.

Bank B in the United States wants to receive INR from an Indian company for services rendered. Bank B can then use these funds for its operations or convert them to another currency as needed. Nostro accounts are mostly commonly used for currency settlement, where a bank or other financial institution needs to hold balances in a currency other than its home accounting unit. A vostro account is a record of money held by a bank or owed to a bank by a third party (an individual, company or bank). Nostro and Vostro are variations on the Latin words that mean “ours” and “yours,” respectively.

Loro Account

Nostro and Vostro accounts are typically used with foreign remittances and foreign exchange transactions, meaning one currency is exchanged for another. The terms Nostro and Vostro help banks differentiate between the accounts from an accounting perspective. Nostro accounts are widely used in international trade to simplify the process of making and receiving payments in foreign currencies. They help banks manage their foreign currency positions and provide liquidity for cross-border transactions.

For example, Bank A would refer to “our” account at Bank B. Nostro is shorthand for saying “our” money that is on deposit at your bank.” “Nostro” and “Vostro” are Italian terms, evolved from older Latin terms, used to describe the same bank account but from different points of view. Nostro refers to “our” account held in a foreign bank, while Vostro refers to the foreign bank’s point of view, whereby they hold “your” account in their bank.

Conversely, a vostro account with a credit balance (i.e. a deposit) is a liability, and a vostro with a debit balance (a loan) is an asset. Thus in many banks a credit entry on an account (“CR”) is regarded as negative movement, and a debit (“DR”) is positive – the reverse of usual commercial accounting conventions. In some cases, the facilitator bank may not be a primary clearing member but they will have the ability to make payments in local currency, possibly through another bank in the same country. Nostro and vostro (from Italian, nostro and vostro; English, ‘ours’ and ‘yours’) are accounting terms used to distinguish an account held for another entity from an account another entity holds. In practice, a Loro account is a third-party account, and banks use this term to refer to the Nostro or Vostro accounts of other banks.

These accounts are often used in settlements of global trade and foreign exchange transactions. Nostro accounts differ from standard demand deposit bank accounts in that they are usually held by financial institutions denominated in foreign currencies. A bank counts a nostro account with a debit balance as vostro and nostro account a cash asset in its balance sheet.

vostro and nostro account

Nostro, Vostro, and Loro Accounts: A Comprehensive Guide to International Banking

In this case CMB will make entries on several other accounts, such as a teller’s receiving account, or a clearing account with the third bank holding C’s account. A Nostro (“our”) account refers to an account held in a foreign bank, while Vostro (“yours”) refers to the same account from the viewpoint of the foreign bank. Let’s say that GTBank, a Nigerian bank, receives a significant amount of money sent to its customers in Nigeria from the United States in the form of remittances. As a result, GTBank enters into an agreement, opening an account with Citibank remotely in U.S. dollars.

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These accounts help banks manage their correspondent banking relationships and facilitate indirect transactions. Vostro (yours) is the term Bank B uses to describe Bank A’s account with Bank B. Vostro refers to “your money on deposit at our bank.” A Vostro account is like any other account held by a bank. The account is a record of money owed to or maintained by a third party, typically another bank, but it can be either a company or an individual.