Nostro Account vs. Vostro AccountDifferences You Need to Know Between the Two!

Written By:
Lisa Borga

The terms Nostro and Vostro actually describe the same bank account.

The terms describe a situation in which one bank is holding a deposit owned by another bank.

This term is generally used when international trading is involved as well as for some additional transactions.

The banks involved in this situation both need to record the money that is being held by one bank for the other bank involved.

The words Nostro and Vostro help make it clear in each bank’s accounting records which bank is holding the money and which bank owns the money.

Nostro and Vostro are variants of Latin words that mean ours and yours.

The type of retail banking that is used today is based on banks in Italy in the 13th and 14th centuries.

During this time, retail banks and depositors each kept their own ledgers containing their balances.

The Ledger that the customer depositing the money kept was referred to as a Nostro ledger.

Whereas the bank’s Ledger that corresponded to the Nostro ledger was called a Vostro ledger.

Nostro Account

A Nostro account is a bank account owned by a bank in one country and held by another bank in a foreign country in the foreign country’s currency.

These accounts are often set up to make it easier for businesses to complete foreign trade transactions.

A Nostro account is the record kept by the bank that is making a deposit at a foreign bank.

This bank account is different from most demand deposit accounts in banks because they are typically in the currency of the country where the deposit is being held.

Vostro Account

Vostro account is a term used to describe an account held by another bank on behalf of the bank which owns it.

Vostro is a Latin word that essentially translates to “your” and, in this context, refers to “your account,” which is held by another bank.

A Vostro account works just like any other account held by a bank, but in this case, its owner is a corresponding bank.

The Vostro account is simply a record of the amount of money that the bank holding the account owes to the other bank.

Vostro accounts are most commonly used in currency settlements in which a bank must hold balances of a currency other than its home currency.

Commonly, banks in the U.S. and U.K. will hold Vostro accounts from foreign banks.

This account is held in the currency of the country in which it is deposited, and other parties will be instructed to settle transactions using this account.

Example of Nostro vs. Vostro

For example, suppose a bank in Ghana receives money from its customers who are currently employed in the U.K.

The bank in Ghana has an agreement with a British bank in which the British bank will open an account remotely for Ghana in U.K. currency.

This will allow any money that the customers want to send to the bank in Ghana to be deposited in the remote account.

Then, any money sent by the customers from Ghana will be transferred by the U.K.

bank through SWIFT to its U.K. currency account in Ghana. SWIFT is the Society for Worldwide Interbank Financial Telecommunications.

SWIFT is a cooperative owned by its members that handle financial transactions.

Once the U.K. bank makes the transfer, the bank in Ghana can convert the fund to its local currency and place it in the customer’s accounts.

The bank in Ghana would consider its U.K. account a Nostro account.

The U.K. would consider the account it holds for the bank in Ghana a Vostro account.

The domestic bank that holds the account acts as the caretaker for the Nostro and Vostro accounts.

This bank is commonly known as the facilitator bank.

Nostro accounts that have debit balances are viewed as cash assets.

Whereas Vostro accounts that have credit balances are viewed as a type of liability.

Key Takeaways

• The words Nostro and Vostro are used as a way to describe one bank account from the point of view of two different banks. These terms are used when one bank has money on deposit in another bank.
• The word Nostro is used to indicate that the money belonging to the depositing bank (our money) is on deposit at your bank.
• The word Vostro is used to indicate that your money (the depositing bank’s money) is being held by our bank