FRANKFURT/LONDON (REUTERS) - Europe's financial sector scrambled on Thursday (Feb 24) after Russia invaded Ukraine, with Allianz disclosing it had frozen its Russian government bond exposure and top British domestic lender Lloyds saying it was on heightened alert for cyber attacks.

Deutsche Bank said it had contingency plans in place, and European officials warned that a fresh round of sanctions was in the offing.

Shares of leading banks sank in morning trade. An index of European banking stocks was down 6.1 per cent before midday, steeper than a 4 per cent fall in the Euro Stoxx index.

Banks with significant operations in Russia were particularly hard hit, with Austria's Raiffeisen Bank International (RBI) down 16 per cent and Societe Generale losing 8.6 per cent.

Shares in UniCredit, whose Russian arm is one of the largest lenders in the country, fell as much as 9 per cent, before triggering an automatic trading suspension.

Earlier on Thursday, Russian forces fired missiles at several cities in Ukraine and landed troops on its coast, officials and media said, after President Vladimir Putin authorised what he called a special military operation in the east.

European banks are the world's most exposed to Russia - especially those in France, Italy and Spain, far outstripping US banks' exposure, data from the Bank for International Settlements shows.

German regulator BaFin said it was keeping a watchful eye on the crisis.

European Union leaders will impose new sanctions on Russia, freezing its assets, halting access of its banks to the European financial market and targeting "Kremlin interests" over its "barbaric attack" on Ukraine, senior officials said on Thursday.

But in what will be a relief to Europe's banks, the European Union is unlikely at this stage to take steps to cut Russia off from the Swift global interbank payments system, several EU sources said.

Both Deutsche Bank and Allianz - two of Europe's most important financial firms and both with operations in Russia - said they were ready to comply with sanctions.

Allianz, one of the world's biggest asset managers, said that the share of Russian government bonds in its portfolio was currently very low, and that it had recently implemented a freeze on those securities.

Deutsche Bank, like many lenders in recent years, has reduced its presence in Russia as sanctions on the country have expanded.

"We have contingency plans in place," the bank said in a statement. A spokesman declined to elaborate. The lender's shares were down more than 7.4 per cent, one of the biggest declines among German blue chips.

Lloyds chief executive Charlie Nunn told reporters that it was on "heightened alert... internally around our cyber-risk controls and we've been focused on this for quite a while."

Preparation for potential cyber attacks was discussed in a meeting between the government and banking industry leaders about Russia on Wednesday, Mr Nunn said.

Lloyds has been on heightened alert for the last couple of months, he added.

RBI, which this month said it had earmarked €115 million (S$174 million) in provisions for possible sanctions on Russia, said on Thursday, as its shares dropped sharply, that it was premature to assess the impact on its business and that its banks in Russia and Ukraine were well capitalised and self-financing.

Italian heavyweight Intesa Sanpaolo, which has financed major investment projects in Russia such as the Blue Stream gas pipeline and the sale of a stake in oil producer Rosneft, fell 7.3 per cent.

While many bankers have played down the importance of Russia to their operations, Russia is tightly linked to the European economy.

Russia is the EU's fifth-largest trading partner, with a 5 per cent share of trade, data shows. The US' trade with Russia is less than 1 per cent of its total.

Some of the region's top bankers have been more concerned about the potential secondary effects of the crisis.

The boss of HSBC, one of Europe's largest banks, Mr Noel Quinn, said this week that wider contagion for global markets was a concern, even if the bank's direct exposure was limited.