"Nostro" and "vostro" are two different terms used to describe the same bank account. The terms are used when one bank has another bank's money on deposit, typically in relation to international trading or other financial transactions.
Bank Account Breakdown
Both banks in the venture must record the amount of money being stored by one bank on behalf of the other bank. The terms nostro and vostro are used to differentiate between the two sets of accounting records kept by each bank. A nostro account is the term used by Bank A to refer to "our" account held by Bank B. Nostro, a term derived from the Latin word for "ours," is a shorthand way of talking about "our money that is on deposit at your bank." (See: Where did the term "nostro" account come from?)
The nostro account is the record of the bank whose money is on deposit at another bank. These accounts are often used to simplify settlements of trade and foreign exchange transactions. (See What is the difference between a Nostro account and a regular bank account?)
"Vostro account" is the term used by Bank B, where bank A's money is on deposit. Vostro is derived from the Latin word for "yours," and refers to "your money that is 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.
Banks in the United Kingdom or the United States often hold a vostro account on behalf of a foreign bank. The vostro account is held in the currency of the country where the money is on deposit.
What Is The Difference Between A Nostro And A Vostro Account?
A Useful Instance
Let's look at an example. GTBank, a Nigerian bank, gets a lot of money sent to its customers at home from the United States in the form of remittances. Since GTBank does not have a physical presence in the United States, it enters into an agreement with Citibank where the latter has an account remotely opened for GTBank in U.S. dollars. This way, money received by U.S. customers and businesses sending money to GTBank account holders in Nigeria will be deposited in the account that GTBank has with Citibank.
This money deposited will then be transferred by Citibank via SWIFT to GTBank's U.S. dollar account in Nigeria. GTBank receives the dollar denominated funds, converts it into the local currency i.e. the naira, and deposits it to the local accounts of the recipients.
From GTBank's perspective, its US dollar account with Citibank is a Nostro account. From Citibank's perspective, it is holding a Vostro account for GTBank in US dollars.
For both nostro and vostro accounts, the domestic bank — i.e., the bank that is holding the account — acts as caretaker for the account and is sometimes referred to as the "facilitator" bank.
Nostro accounts with debit balances are considered cash assets. Contrarily, vostro accounts with a credit balance are considered liabilities. Computerized accounting allows for easily reconciling nostro and vostro accounts just by using "+" or "-" signs in the banks' respective accounting systems.