By Carolyn Cohn and Saeed Azhar
LONDON (Reuters) – British banking group HSBC, France’s Societe Generale and South Korean lenders are winding down relationships with a host of Russian banks, as they put Western sanctions against Russia into practice.
The United States, Britain, Europe and Canada announced new sanctions on Russia on Saturday – including blocking certain banks’ access to the SWIFT international payment system – following Russia’s invasion of Ukraine.
An advisory notice from HSBC, seen by Reuters, told staff how they should apply the new global sanctions on Russia.
Headed “Action Required” and dated Feb 27, it highlights the fact that the UK Office of Financial Sanctions Implementation had authorised “The wind down of certain transactions involving VTB Bank and certain UK subsidiaries.” VTB, one of Russia’s biggest banks, is affected by British sanctions.
HSBC declined to comment.
HSBC has little direct exposure in Russia, with its Chief Financial Officer Ewen Stevenson telling reporters last Tuesday it has around 200 employees and annual revenues of $15 million there, a fraction of its global income of $50 billion.
But as the world’s leading trade finance bank and Europe’s second-largest lender, HSBC is a vital cog in the global banking machine and being cut off from its services is a blow to Russia.
The London Stock Exchange has suspended the membership of VTB Capital, which is owned by VTB. The suspension means VTB Capital can no longer trade on the LSE.
Two leading banks in South Korea confirmed on Monday that while they have not yet received specific guidelines from SWIFT, they stopped trade financing with at least seven Russian banks.
Societe Generale said it had “both anticipated and swiftly put in place all measures linked to new sanctions imposed”, and that its Russian business Rosbank continued to operate in a “safe manner.”
Deutsche Bank, Germany’s largest bank, said it had created a website to help its corporate clients deal with the Russia fallout. It includes information on the impact of sanctions and changes in international payment transactions.
International departments of Chinese banks are likely to be monitoring their links with Russian banks, Han-Shen Lin, senior adviser for advisory firm The Asia Group, said.
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HSBC’s internal notice also set out other sanctions imposed by Britain, the European Union and the United States and lists other Russian companies subject to the sanctions, including development bank VEB.
In an indication of the far-reaching nature of the restrictions, HSBC pointed out that under U.S. sanctions, an entity that is 50% owned or more, directly or indirectly, by one or more blocked persons is itself also considered blocked, whether or not it is on the sanctions list.
EU sanctions apply a similar rule, HSBC said.
South Korea’s Shinhan Bank and a second leading South Korean bank said that they stopped issuing letters of credit and other trade financing to Russian banks PSB, VEB, VTB, Bank Otkritie, Novikombank, Sovcombank, and Sberbank.
The second South Korean bank declined to be identified due to the sensitivity of the matter.
Britain said on Monday it was taking further measures against Russia in concert with the United States and the EU, including banning any British entities from undertaking transactions with the Russian central bank, finance ministry and wealth fund.
Banks are likely to err on the side of caution, said Ross Denton, head of international trade at law firm Ashurst.
“A lot of financial institutions go beyond what the law requires.”
(Additional reporting by Lawrence White and Julien Ponthus in London, Sumeet Chatterjee in Hong Kong, Andrew Galbraith in Singapore and Tom Sims in Frankfurt editing by John O’Donnell and Jane Merriman)
