Ukraine crisis: Singapore banks limit financing for Russian raw materials; Japan imposes more sanctions on Russia

Singapore banks halt lending for Russian commodities to isolate Moscow, reduce exposure to the sanction-hit country

Japan slapped additional sanctions on Russia, including freezing assets of president Vladimir Putin over invasion of Ukraine

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The Merlion statue and buildings of the financial district in Singapore. Photo: EPA-EFE

Published: 10:30am, 1 Mar 2022Updated: 1:14pm, 9 Mar 2022

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 commodities, including oil and liquefied natural gas, according to people familiar with the situation.

DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. 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 isn’t public. OCBC’s restrictions cover all commodities, one of the people said.

DBS is one of several Singapore banks 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. April 2012. Photo: EPA

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 US and European Union sought to exclude energy from the latest round of new sanctions.

Energy prices have rallied since Western nations unleashed more sanctions to isolate Russia, one of the world’s biggest 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 per cent higher.

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

Lenders in the city state, 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.

Singapore banks are limiting financing for trades involving Russian commodities, including oil and liquefied natural gas. March 2016. Photo: Bloomberg