[Song Seungseop's Financial Light] Russia Sanctions Direct Hit... South Korean Financial Market Also 'Shaken'

SWIFT Effectively Halts Russian Financial Transactions
Russian Funds Suspend Redemptions, ETFs Face Delisting Risk
Government Provides Emergency Financial Support Worth 2 Trillion Won to Affected Companies

Finance is difficult. It is entangled with confusing terms and complex backstories. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and to consistently follow the flow of money, basic financial knowledge must be grounded. Accordingly, Asia Economy selects one financial issue each week and explains it in very simple terms. Even those who know nothing about finance can immediately understand these ‘light’ stories that ignite a bright ‘light’ on finance.

Border Guard facility in Kyiv, Ukraine destroyed by shelling [Image source=Yonhap News]

[Asia Economy Reporter Song Seung-seop] The war with Ukraine, which began with Russia's invasion, has escalated into sanctions by Western European countries, increasing its impact on the international community. In particular, the exclusion from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), known as the ‘financial nuclear weapon,’ has already been enforced. South Korea is no exception. What impact will this have on Korea's financial market?

The most direct effect is that banks will stop financial transactions with Russia. SWIFT is essentially the communication network used by countries and banks worldwide for international transactions, so banks excluded from it, such as Russian banks, cannot send or receive money. Seven banks are targeted by sanctions, including VTB Bank, known as Russia's second-largest bank, Bank Rossiya, Bank Otkritie, Novikombank, Sovcombank, Promsvyazbank (PSB), and VEB.

The government has already expressed its intention to join the financial sanctions against Russia. On the 1st, the Ministry of Strategy and Finance issued a press release strongly recommending domestic public institutions and financial institutions to suspend all transactions involving newly issued Russian government bonds starting from the 2nd. Since the U.S. has warned that financial institutions in third countries dealing with sanctioned banks will also be regulated, commercial banks must comply diligently.

[Image source=Reuters Yonhap News]

Citizens with students studying in Russia or relatives and children there will inevitably face inconveniences. Korean residents living in Russia will experience the same. Additionally, domestic businesses trading with Russian companies will face operational disruptions. Even if they sell goods, it will be difficult to receive payments, and even if they want to purchase raw materials, there will be no way to transfer money.

Warning on Russian Financial Products and Investments

Russian-related financial products have also suffered significant damage. First, the European Union (EU) Commission has prohibited investments in projects jointly funded by the Russian Direct Investment Fund (RDIF). Morgan Stanley Capital International (MSCI) has removed Russia from its emerging markets index. Related funds have suspended redemptions, and exchange-traded funds (ETFs) face delisting risks. The ‘Russia Leveraged ETF’ decided to liquidate the fund due to restricted access to the Russian stock market. Also, various Russian ETFs listed in the U.S. (RSX, ERUS, RSXJ) have stopped new subscriptions.

The KOSPI plunged on the 24th when Russia's invasion of Ukraine began.
[Image source=Yonhap News]

Investing in Russia has become extremely risky. Russia has announced that it will confiscate assets of foreign investors within its territory. Repayment of external debt by Russian nationals has also been banned. This is an extreme measure to prevent the collapse of Russian government bond prices and the ruble, which have plunged by 50% and 30%, respectively, and to avoid default risks faced by domestic companies and financial institutions. This is why you should not recklessly purchase related financial products just because prices have dropped.

As anxiety and concerns about the Korean financial market grow, the government has begun to implement stabilization measures. On the 4th, the government decided to provide emergency financial support worth 2 trillion won to companies affected by this situation. The target companies are those that have engaged in exports, imports, or deliveries in Russia within the past year. Support measures include loan interest rate reductions, relaxation of approval authority, and special repayment deferrals.

Additionally, a 24-hour emergency monitoring system for the financial market, inspection of the status of foreign exchange settlement networks related to Russia, and operation of a hotline with foreign exchange banks will be implemented.

This content was produced with the assistance of AI translation services.