South Korea halts transactions with Russia’s central bank

Government to provide up to W1b to companies with 30% or more of their exports to Russia, Ukraine


The Ministry of SMEs and Startups on Monday holds a task force meeting for emergency response for small- and medium-sized companies embroiled in the Russian and Ukranian conflict. (Yonhap)

March 8, 2022

Seoul – South Korea has decided to shut down transactions with Russia’s central bank and national funds in efforts to join the international movement to impose more sanctions against Moscow, while providing state emergency support for companies doing business with the Slavic countries in war, the government said Monday.

Seoul’s announcement followed the recent series of sanctions by the US and EU to ban transactions with Russia’s state-run financial institutions.

The Ministry of Economy and Finance said the transaction suspension against the Central Bank of Russian Federation, the National Wealth Fund of the Russian Federation, and the Russian Direct Investment Fund will take effect from Tuesday.

However, for transactions exempt from the sanctions under the US general license including agricultural goods, COVID-19 medical support, and energy, the ministry said such transactions will be allowed under the same standard.

The government also halted transactions with Rossiya Bank, one of the seven banks that will be banned from the Society for Worldwide Interbank Financial Telecommunication network. The EU excluded the banks from SWIFT last week.

With Monday’s additional sanctions against Moscow, Korea has stopped transactions with a total of 11 Russian institutions and companies so far.

The government also drafted customized countermeasures for small- and medium-sized enterprises that are facing troubles such as delayed exports, logistics costs, and rising prices of raw materials.

Companies that have 30 percent or more of their exports sent to Russia and Ukraine will be subject to receive up to 1 billion won ($816,000) per firm as the government’s stabilizing funds for emergency management. Of the 6,021 companies that exported to Russia and Ukraine last year, 1,824 were found to be eligible, according to the government.

For the 316 companies that rely 100 percent on Russia and Ukraine for their exports, the government will assign designated officials to offer them help.

The authorities said they will establish new special guidelines of financial guarantees for damaged companies to offer more favorable guarantee limits and ratios.

Using Gobiz Korea, an online state-run matchmaking program for overseas buyers and domestic firms, the government said it will help war-affected companies find alternative trade routes and provide support for promotional activities and exhibitions.

In order to ease the burden of logistics costs, the government pledged to compensate for damages suffered from return and delay fees of exports to Russia and Ukraine in the scope of export voucher support.

The government added that it will offer legal advice and consultation to business groups whose cost burdens have increased due to rising raw material prices.

“The government decided to impose the additional sanctions to peacefully resolve the crisis and curb the armed aggression as a responsible member of the international society,” the finance ministry said in a statement.

Starting Monday, Seoul also began to ban exports of strategic items to Belarus. The eastern European country, formerly one of the Slavic republics in the Soviet Union, has been supporting Russia‘s invasion of Ukraine.

The government on Friday announced its plan to implement an emergency financial support program worth 2 trillion won that will be carried out in the form of a special loan by state-run banks. On top of that, the government decided to offer special grace periods, such as extending the loan maturity dates, for SMEs that are forecast to experience losses from the Russia-Ukraine conflict.

Companies at stake

Not only SMEs but also big companies are on high alert as their operations in Russia and Ukraine are at stake.

Due to the prolonged Russia-Ukraine crisis impacting component delivery to Korean firms’ manufacturing plants in Russia, Hyundai Motor Group said Monday they’re unsure about when to resume operations at its assembly plant in St. Petersburg, Russia.

Although the Korean automaker said that it is temporary shutdown is influenced by automotive chip shortage which has continued from last year, it seems evident that Hyundai Motor Group is facing a dilemma regarding the operation in Russia.

With global shipping firms like MSC and Maersk also suspending shipping operations to Russia in response to the international effort to bar the Russian economy, the South Korean carmaker stopped operations at its St. Petersburg plant on March 1.

The Russian market is responsible for about 4 percent of Hyundai Motor Group’s global production capacity, with some 330,000 vehicles built there. Manufactured vehicles are exported to neighboring European countries.

Last year, Hyundai Motor and its sister company Kia Motors sold a total of 171,811 units and 205,801 units respectively, which altogether reach 22.6 percent of market share in the local market, No. 2 after French carmaker Renault Group.

The Korean carmaker aimed at selling a total of 455,000 units this year, about 5.8 percent higher than that of last year, but industry insiders said the carmaker has halved down its production volume due to ongoing geopolitical issue.

Market experts noted that if the shortage of automotive components including chips continue, Korean firms may consider shutting down their plants and exiting the market.

“With the US and EU’s decision of SWIFT sanctions on Russia, it will be difficult for the Korean carmaker to export as it did in the previous years. Some 450 billion won of loss is expected for Hyundai Motor Group,” said Samsung Insurance’s EV and mobility researcher Yim Eun-young.

Posco International, the country’s largest trading firm under Posco Holdings, has also halted the operation of its grain terminal in Mykolaiv, Ukraine. This poses a significant risk to the Korean company, which sought to expand its grain capacity to 25 million tons globally by 2030 to become one of the world’s top 10 food companies. Posco International’s food business accounts for about one-fourth of its total sales besides steel manufacturing and energy.

“We have relocated resident workers from Ukraine, and all of them returned to Korea. We are still closely monitoring the situation,” said an official from Posco International.

Set up in 2019, Posco International’s grain terminal has been a major gateway for overseas grain sales such as corn and wheat to Europe, North Africa, the Middle East, and Asia.

According to the Korea International Trade Association, there were over 300 reports filed by local companies about difficulties in exporting to Russia and Ukraine since Feb. 24. More than half of the cases were related to payment issues as the US and EU imposed economic sanctions against Russia. Other difficulties included logistics problems and a lack of information.

“As the recent series of incidents have caused a series of damages to the trade industry exporting to Russia and Ukraine, we will continue to make efforts to minimize damage through cooperation with the government and related agencies,” said Sin Seong-kwan, executive vice president at KITA.


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