Dubai's Mashreq Bank has stopped lending to Russian banks and is reviewing its existing exposure to the country as a result of heightened risks following Moscow's invasion of Ukraine, two sources familiar with the matter told Reuters.
The move is one of the first reported instances of a bank in the Middle East halting ties to Russia and underscores growing global nervousness about falling foul of Western sanctions.
Mashreq Bank declined to comment on the move, which comes as banks around the world wind down ties with Russian lenders after a spate of new sanctions announced by the United States, Britain, the European Union and Canada, including blocking access to the SWIFT international payment system for some banks.
Russian financial institutions (FIs) were part of the emerging market loan portfolio that Mashreq Bank had grown in recent years to expand beyond the Middle East, the sources said.
The exposure was mainly short-term or one-year loans to banks, one of the sources added.
Mashreq Bank's actions indicate that emerging market banks are also getting nervous about their Russian exposure and the potential risk of secondary sanctions, bankers said.
Last year, Mashreq Bank agreed to pay $100 million in penalties to resolve a US government probe into violations of sanctions against doing business with Sudan.
The bank's decision to stop lending to Russian FIs was not due to any directive from the Central Bank of United Arab Emirates (CBUAE), but was to mitigate the risk from its Russian exposure, the sources said.
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A sharp fall in the Russian rouble and the downgrading of Russia by rating agencies were also concerns because it affects the credit quality of Russian banks, they added.
Rating agency S&P lowered Russia's long-term foreign currency credit rating to 'BB+' from 'BBB-', and warned it could lower ratings further, after getting more clarity on the macroeconomic repercussions of the sanctions.
Russia's central bank has beefed up its banking sector with billions in additional foreign exchange and rouble liquidity, while the government has separately pledged full-scale support to sanctions-hit companies.
CBUAE, when asked for comment, directed Reuters to the Targeted Financial Sanctions page on its website and referred questions to the Executive Office of the Committee for Goods and Materials Subject to Import and Export Control, which Reuters could not immediately reach for comment.
Bankers said the UAE central bank has so far not issued any directive on doing business with Russian companies or exposure.
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