Singapore banks suspend commodity lending to Russia to reduce risk

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DBS Group, Oversea-Chinese Banking Corp. and United Overseas Bank have stopped issuing letters of credit for Russian energy deals. (PHOTO: REUTERS/Edgar Su)

By Stephen Stapczynski, Faris Mokhtar and Alfred Cang

(Bloomberg) —Singapore’s biggest banks are squeezing Russian commodity trade financing, as war in Ukraine prompts lenders to Asia’s biggest energy and commodity trading hub to reduce exposure to the countries under sanctions.

The limits include halting the issuance of so-called US dollar letters of credit for transactions involving Russian commodities, including oil and liquefied natural gas, according to people familiar with the matter.

DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. have stopped issuing letters of credit involving Russian energy deals due to uncertainty over sanctions, according to the people, who asked not to be identified as the information is not public. OCBC’s restrictions cover all products, one of the people said.

A trade finance crunch in a commodities hub like Singapore could rumble trade in some physical cargoes and add further pressure on prices, even as the United States and European Union have sought to exclude energy of the latest round of new sanctions.

Energy prices have risen since Western countries imposed new sanctions to isolate Russia, one of the world’s largest oil and gas exporters. Brent crude, the global benchmark, advanced to trade above US$100 a barrel on Monday, while European natural gas closed more than 4% higher.

The move also comes as Singapore’s Foreign Minister Vivian Balakrishnan told parliament on Monday that the government plans to impose sanctions on Russia, including export controls and that it will block certain Russian banks and financial transactions involving Russia, although details are still being worked out.

Lenders in the city-state, a key trading hub for commodity trading and finance in Asia, join at least two of China’s biggest state-owned banks and some European banks in restricting the ability to buy commodities Russian premieres.

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

“Manage all risks”

OCBC said in an email response to questions: “Our business is primarily in Asia and our international branches primarily serve our network customers. Our exposure to Russian entities is not material.

A UOB spokesperson said the bank had “previously advised a handful of our clients whose trade flows are affected by potential sanctions to manage their exposure accordingly”, without providing further details. The bank also states on its website that it can decide not to process transactions “if such activities do not match UOB’s risk appetite.”

The city-state’s banking regulator, the Monetary Authority of Singapore, said on Monday it had sent a circular to all financial institutions in the city-state “reminding them to manage all risks related to the situation in Ukraine and the sanctions imposed by the main jurisdictions”. ”

“Financial institutions are aware of the heightened risks and are taking appropriate steps to manage legal, reputational and operational risks arising from sanctions imposed by various jurisdictions,” he said.

© 2022 Bloomberg L.P.

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