According to sources familiar with the issue, the restrictions include a ban on issuing so-called letters of credit in US dollars for dealings involving Russian commodities such as oil and liquefied natural gas.
Because of the uncertainty over the course of sanctions, DBS Group Holdings Ltd., Oversea-Chinese Banking Corp., and United Overseas Bank Ltd. have stopped issuing letters of credit involving Russian energy deals, according to the people, who asked not to be identified because the information isn’t public. According to one of the sources, OCBC’s limits apply to all commodities.
Even if the US and EU intended to exclude energy from the latest round of fresh sanctions, a snarl in trade financing in a prominent commodities center like Singapore might snarl the trading of some physical cargoes and put more pressure on prices.
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Since Western nations imposed further sanctions to isolate Russia, one of the world’s largest oil and gas suppliers, energy prices have risen. The worldwide benchmark, Brent crude, rose past $100 a barrel on Monday, while European natural gas ended the day more than 4% higher.
Singapore’s Foreign Minister Vivian Balakrishnan announced in parliament on Monday that the government intends to impose sanctions on Russia, including export controls and the blocking of certain Russian banks and financial transactions involving Russia, though the details are still being worked out.
Without going into detail, a UOB spokeswoman said the bank had “previously warned a handful of our clients with trade flows affected by anticipated penalties to manage down risk accordingly.” On its website, the bank also states that “if these operations fall outside UOB’s risk appetite,” it may refuse to handle transactions.
The Monetary Authority of Singapore, the city-bank state’s regulator, issued a circular to all financial institutions in the city-state on Monday, “reminding them to manage any risks related with the situation in Ukraine and the sanctions imposed by key jurisdictions.”
“Financial institutions are aware of the increased risks and are taking proper steps to mitigate any legal, reputational, or operational concerns emerging from the sanctions imposed by various jurisdictions,” the report stated.
Lenders in the city-state, which is a significant trading hub for commodities trade and banking in Asia, have joined at least two of China’s top state-owned banks and certain European banks in limiting access to Russian commodities.
In response to a request for comment, DBS stated, “DBS would comply with any applicable fines.” “We have low direct exposure to Russia and, in accordance with our risk management duties, we have modified our appetite for transactions that consume Russian exposure limitations. Our business is mostly in Asia, and our international offices service predominantly our network customers, and we have no significant exposure to Russian firms” OCBC said in an emailed answer to inquiries.
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