SWIFT sanctions on Russia will be felt in Korea

Economy

Published: 28 Feb. 2022, 16:51 Updated: 28 Feb. 2022, 18:16

SWIFT sanctions on Russia will be felt in Korea

A shipyard in Geoje, South Gyeongsang, on Monday. Three Korean shipbuilders – Korea Shipbuilding & Offshore Engineering, Daewoo Shipbuilding & Marine Engineering, Samsung Heavy Industries – signed deals to build seven vessels for Russian shippers since late 2020. [YONHAP]

The West’s decision to cut off a number of Russian banks from the SWIFT network could hurt Korea's trade and spur inflation.

SWIFT is a Belgium-based messaging service, formally known as the Society for Worldwide Interbank Financial Telecommunications, that connects more than 11,000 financial institutions around the world.

The United States, UK, Europe and Canada agreed Saturday to remove selected Russian banks from the SWIFT system, which is bound to impact both Russia and its trade partners.

“I received tens of calls from business people who export or import from Russia,” said Choi Jin-hyung, a spokesperson for the Korea Trade Investment Promotion Agency (Kotra) based in Moscow.

“Financial transactions will become difficult to make,” predicted Cho Yong-seok, a spokesperson for the Korea International Trade Association. “Importing raw materials will become difficult because payments can’t be made, and companies that export won’t be able to receive payments.”

Korean residents in Russia, and students studying there, will face problems getting money from abroad.

“In Korea, it’s difficult to make transactions with a foreign bank without SWIFT,” said a spokesperson for a commercial bank who asked not to be named.

More than 70 companies doing business in Russia have asked Kotra for assistance since last week. They include a company that exports auto parts and one that exports machinery to Russia. They worry about not being able to receive payments.

Economic sanctions on Russia is expected to spur inflation in Korea too.

“If energy or grain exported from Russia is not properly supplied to the global market, it will raise energy and grain costs and put greater pressure on inflation,” said Cho Young-mu, a researcher at LG Business Research.

Stocks that bounced back on Friday could face a rocky future because “one of the reasons for the U.S. stock recovery on Feb. 25 was because U.S. economic sanctions against Russia were weak,” said Park Sang-hyun, a researcher at Hi Investment & Securities. “The curbs on SWIFT could jack up international oil prices and pull down global stock markets.”

The government said there was no need to panic.

According to the Financial Supervisory Service, the risk exposure to Russia and Ukraine only accounted for 0.4 percent of the total foreign risk exposure of all financial companies in Korea. Risk exposure is a measure of potential future losses resulting from a specific activity or event.

The four largest commercial banks in Korea – KB Kookmin, Shinhan, Hana, Woori – had a combined exposure of 603.7 billion won ($500 million) to Russia in numerous forms, including loans and payment guarantees, as of late September.

The Korean government agreed Monday to take part in global economic sanctions against Russia, including strengthening the monitoring of strategic materials exported to Russia.

BY KIM PIL-KYU, HWANG EUI-YOUNG, KIM KYUNG-JIN, JIN MIN-JI [jin.minji@joongang.co.kr]