Singapore banks said to halt Russia commodity lending as sanctions mount

The limits include a halt on issuing letters of credit in US dollars for trades involving Russian oil and liquefied natural gas. PHOTO: ST FILE

SINGAPORE (BLOOMBERG) - Singapore's biggest banks are restricting trade financing for Russian raw materials as the war in Ukraine spurs lenders in Asia's largest energy and commodities trading hub to reduce exposure to the sanction-hit country.

The limits include a halt on issuing so-called letters of credit in US dollars for trades involving Russian oil and liquefied natural gas, according to people familiar with the situation.

DBS Bank, OCBC Bank and UOB have stopped issuing letters of credit involving Russian energy deals because of uncertainty over the course of sanctions, according to the people, who asked not to be identified as the information is not public. OCBC's restrictions cover all commodities, one of the people said. 

A choke on trade financing in a top commodities hub such as Singapore could snarl the trade of some physical cargoes and add further pressure to prices, even though the United States and European Union sought to exclude energy from the latest round of new sanctions.

On Monday (Feb 28), the first day of trading after Western nations unleashed more sanctions to isolate Russia, one of the world's biggest oil and gas exporters, Brent crude, the global benchmark, rose as much as 7 per cent to top US$105 a barrel when trading opened in Asia, while European natural gas shot up 36 per cent.

The move also comes as Foreign Minister Vivian Balakrishnan said in Parliament on Monday that the Government would block certain Russian banks and some financial transactions involving Russia, though details are still being worked out.

Lenders in Singapore, a key trading hub for commodities trade and finance in Asia, join at least two of China's largest state-owned banks and some banks in Europe in restricting the ability to purchase Russian commodities.

"DBS will comply with all applicable sanctions," the bank said in response to a request for comment. "Separately, we have minimal direct exposure to Russia and, consistent with our risk management obligations, have adjusted appetite for transactions consuming Russian exposure limits."

'Manage any risks'

OCBC said in e-mailed response to questions: "Our business is predominately in Asia and our international branches serve mostly our network customers. Our exposure to Russian entities is not significant."

A UOB spokesman said the bank had earlier advised a handful of its clients "with trade flows affected by potential sanctions to manage down exposure accordingly", without providing further details. The bank also says on its website that it may decide not to process transactions "if these activities fall outside UOB's risk appetite".

The Monetary Authority of Singapore said on Monday that it sent a circular to all financial institutions in the city-state "reminding them to manage any risks associated with the situation in Ukraine and the sanctions imposed by major jurisdictions".

"Financial institutions are aware of the heightened risks and are taking appropriate measures to manage any legal, reputational and operational risks arising from the sanctions imposed by various jurisdictions," said the bank regulator.

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