RETAIL BANKING: UKRAINE CRISIS
Removing Russian financial institutions from SWIFT or impacting Russian secondary trading are the biggest risks to APAC’s banking industry
Negative impact on APAC banks bubbles up as Russia’s invasion carries on
Financial impact may be larger than expected, especially for China, if secondary sanctions come into play.
W
hilst banks in Asia face only limited impact from the sanctions imposed on Russia, effects on financial markets may snowball in the long run, given the shrinking chances for a quick deescalation of the war. Following Russia’s invasion of Ukraine in late February, various markets–including the US, the European Union, the UK, Japan, and even Singapore–announced sanctions on Russia’s energy exports, financial institutions (FIs), and foreign assets of Russian billionaires. Notably, foreign markets have cut off a number of Russian banks and curbed financial transactions related to Russia. Chief amongst these sanctions are seven Russian banks being cut off from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the global messaging network for cross28 ASIAN BANKING & FINANCE | Q2 2022
border payments, as of 3 March. The US, EU, and the UK have also frozen the Central Bank of Russia’s (CBR) more than US$600b in foreign currency reserves and barred them from moving funds outside of its territorial borders. The effect on Russian FIs was swift. Sberbank, Russia’s largest lender, exited the European market after experiencing “abnormal cash outflows” and announced that they cannot provide liquidity due to the EU ban to move funds abroad–all within a week of the invasion. “With regards to the financial linkages between Asia and Russia, the direct exposure from the three channels–equities, syndicated loans, and bonds–is quite limited,” said Alicia Garcia Herrero, chief economist for the Asia Pacific, and Gary Ng, economist at Natixis, a French corporate and investment bank. “Asia only accounts to 1%
One Asian market remains a key focus following the announcement of sanctions in Russia: China
of equity and bond financing by Russian entities.” On equities, only one major Russian firm is listed in Asia– RUSAL, the world’s second largest aluminum company, which is listed in Hong Kong. Most of Russia’s offshore financing remains in London and the EU. However, if uncertainties extend over time, it could have a negative impact even on banks’ asset quality. Beyond the direct financial exposure, Asian markets are already being affected by the ongoing very negative sentiment, according to Garcia Herrero and Ng. “The good news is the impact is so far small when compared to the rest of the world,” they said. Speaking to Asian Banking & Finance, Natixis’ Garcia Herrero named sanctions removing Russian financial institutions from SWIFT or impacting Russian secondary
