Nostro Bank Account

A Nostro account is a bank account held by a domestic bank with a foreign bank, in a foreign currency, for the purpose of facilitating international transactions. It’s essentially “our account” with a foreign bank, allowing banks to manage their foreign exchange transactions, manage liquidity, and conduct global financial operations.

In banking terminology, “Nostro” is a Latin word that means: “Our“. A Nostro account is used primarily for facilitating foreign exchange and international trade.
The opposite of a Nostro account is Vostro account.

 

Ownership

A Nostro account is owned by a domestic bank, often referred to as the “respondent” bank. The account is maintained with a foreign bank, known as the “correspondent” or “facilitator” bank. This arrangement allows the domestic bank to operate in international markets without a physical presence in the foreign country.

Not for Individuals

Nostro accounts are strictly used by banks and authorized financial institutions. Individual customers cannot open or operate Nostro accounts, as they are tools for institutional-level financial operations.

Purpose

Nostro accounts play a crucial role in international trade and finance. They allow banks to hold funds in foreign currencies to settle cross-border payments and manage foreign exchange operations. This simplifies and speeds up international transactions, reducing the need for constant currency conversion.

Currency

The Nostro account is denominated in the currency of the country where the foreign (correspondent) bank is located. For example, if an Indian bank holds a Nostro account in a bank in the UK, the account would typically be in British Pounds (GBP).

Example

Suppose a US bank needs to make regular payments in Australian dollars. To manage these transactions efficiently, it can open a Nostro account with an Australian bank. This account will hold Australian dollars, enabling the US bank to pay suppliers or fulfill obligations in Australia without delays or conversion issues.