The UAE's Mashreq Bank decided to stop lending to Russian banks due to the heightened risks due to Russia's war on Ukraine, two sources told Reuters.

According to the two sources, the bank is reviewing its current position on the Russian market.

This decision represents one of the first steps by a bank in the Middle East to stop its links with Russia, and confirms the growing tension around the world for fear of falling under Western sanctions.

The UAE’s Mashreq step comes at a time when banks around the world are working to end their relations with Russian banks after a wave of new sanctions announced by the United States, Britain, the European Union and Canada, including the separation of some Russian banks from the international payments system Swift.

The two sources said that Russian financial institutions were part of Mashreq's emerging market loan portfolio, which the bank has expanded into outside the Middle East.

One of the sources added that the bank's exposure mainly consisted of short-term or one-year loans.

Bankers said the steps taken by Mashreqbank indicate that emerging market banks are beginning to feel nervous about their exposure in the Russian market and the potential risk of secondary sanctions.

Last year, Mashreqbank (Dubai's third largest) agreed to pay $100 million in fines to settle a US investigation into violations of sanctions that prohibited dealings with Sudan.

The two sources said that the decision of Mashreq Bank to stop lending to Russian financial institutions is not due to any instructions from the UAE Central Bank, but it is aimed at mitigating risks from the bank's dealings with Russian institutions.

According to Reuters, the bank declined to comment on its move.


Investments in Russia

The two sources added that the sharp depreciation of the Russian ruble and the downgrade of Russia's rating by credit rating agencies are additional concerns, as this affects the credit quality of Russian banks.

Standard & Poor's has downgraded Russia's long-term foreign-currency credit rating to "BB+" from "BBBB-", and warned It may reduce it further after clarification of the implications of the sanctions on the overall economy.

The Central Bank of Russia boosted liquidity in the banking sector with additional billions of foreign exchange and rubles, while the government pledged full support to companies affected by the sanctions.

Bankers said that the UAE Central Bank has not yet issued any instructions related to dealing with Russian companies or the exposure of banks in the Russian market.

Funds affiliated with the UAE - such as Mubadala - have investments in Russian companies, and they also have strategic relations with Russia's sovereign fund for direct investment.

Mubadala's website says it has invested $3 billion in Russia in about 50 companies.