Banks drag local stocks down as Singapore imposes sanctions against Russia over Ukraine invasion

The banking sector here is critical to Singapore's role in financing local and regional growth in trade and infrastructure. PHOTO: ST FILE

SINGAPORE - Singapore banks led a steep decline in the local stock market on Monday (Feb 28), reflecting investors' concern over growth, inflation and tightening financial conditions as Singapore joined the ranks of Western nations to impose unilateral sanctions on Russia for the invasion of Ukraine.

The Straits Times Index ended down 1.59 per cent at 3,242.24 points. DBS Bank slipped 3.2 per cent, OCBC Bank fell 1.5 per cent and UOB declined by 2.2 per cent.

Foreign Minister Vivian Balakrishnan, in an unscheduled ministerial statement in Parliament on Monday, said that Singapore will act in concert with like-minded countries to impose appropriate sanctions on Russia, including curbs on certain Russian banks and financial transaction connected to Russia.

"We must expect that our measures will come at some cost and implications on our businesses, citizens and indeed to Singapore," Dr Balakrishnan said.

The Minister for Trade and Industry, Mr Gan Kim Yong, said the crisis will further strain global supply chains, as Russia and Ukraine are major exporters of commodities such as wheat, and metals like nickel and palladium.

"Supply disruptions for these commodities will raise prices of goods that use these commodities as intermediate input," he said.

The rare move by Singapore to slap sanctions on a country without a United Nations resolution comes after the United States and the European Union ramped up their measures against Russia.

They have already blocked some Russian banks from the international Swift transaction messaging system and frozen the Russian central bank's reserves held in their jurisdictions.

Analysts said the Western sanctions are making a bad situation worse.

The Russian attack on Ukraine has already put into question supplies of commodities from oil to wheat, pushing up energy and food prices worldwide.

The financial sanctions may raise doubts about the health of banks that are heavily exposed to Russian entities and boost speculation about the stability of the global financial system.

Bloomberg quoted unnamed sources saying Singapore's top three banks have stopped issuing letters of credit involving Russian energy deals amid uncertainty over the course of sanctions.

Some European banks such as ING, Rabobank, Credit Suisse and Societe Generale and two of China's largest state-owned banks - Industrial and Commercial Bank of China and Bank of China - have also announced a halt to commodities trade financing for Russian companies.

Suspension of trade financing in a top commodities and banking hub such as Singapore could further worsen the supply of physical cargoes and push energy prices even higher. Brent, the global benchmark of crude oil, on Monday rose as much as 7 per cent to US$105 a barrel.

A spokesman for the Monetary Authority of Singapore (MAS) said financial institutions in Singapore 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.

"MAS has sent a circular to all financial institutions (FIs) in Singapore, reminding them to manage any risks associated with the situation in Ukraine and the sanctions imposed by major jurisdictions.

"FIs should also continue to stay vigilant to any suspicious transactions or flow of funds, and apply enhanced customer due diligence in higher-risk situations," the MAS said.

With a total asset size of almost US$2 trillion (S$2.72 trillion), the banking sector here is critical to Singapore's role in financing local and regional growth in trade and infrastructure.

In response to queries by The Straits Times, Ms Koh Ching Ching, head of group brand and communications at OCBC, said: "Our business is predominately in Asia and our international branches serve mostly our network of customers. Our exposure to Russian entities is not significant."

DBS and UOB gave similar replies.

A UOB spokesman said: "As a bank focused on South-east Asia, UOB has no direct exposure to Russian banks. We have advised a handful of our clients with trade flows affected by potential sanctions to manage down their exposure accordingly."

DBS said the bank will comply with all applicable sanctions.

"Separately, we have minimal direct exposure to Russia, and consistent with our risk management obligations, have adjusted appetite for transactions consuming Russian exposure limits," a DBS spokesman said.

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Mr Nathanael Lin, partner at law firm Rajah and Tann, said the expansion of US, British and EU sanctions against Russia will add uncertainty to the market, and drive up oil and gas prices. He said some commodity traders may be unable to access funds.

"Banks will therefore be watching traders' liquidity positions very closely," he said.

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