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The skyline with the financial district in Frankfurt, Germany, on April 22, 2020.Kai Pfaffenbach/Reuters

Shares in European banks fell on Monday as the impact of Western sanctions against the Russian financial system, including blocking certain banks from the SWIFT payments system, spilled across global markets.

The index for euro zone bank fell more than 7 per cent to hit levels unseen since November.

Investors have bet on European banking stocks riding higher as the continent’s economy recovers from the pandemic, but Russia’s invasion of Ukraine has hit lenders through multiple channels.

Expectations that the European Central Bank would quickly tighten monetary policy to tackle rising inflation have receded in recent days as traders believe the ECB might worry about the economic damage caused by the Ukraine conflict instead.

Equity strategists also believe that cyclical stocks, such as banks, which are typically seen as a proxy to track economic growth, will be among the worst hit from the uncertainty caused by the political tensions.

Finally, it is expected that European banks with heavy exposure to Russia and Ukraine will need to make hefty provisions for the drop of the valuation of their assets in the region.

Austria’s Raiffeisen Bank, France’s Societe Generale and Dutch banking group ING which have significant exposure to the region, were down 14.1 per cent, 10.9 per cent and 9.8 per cent respectively as of 1006 GMT.

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