How Wars Affect the Financial System

Introduction

Throughout history, one thing has been consistent: war. Conflicts draw and design our current society, it shapes our world. However, unlike the past few years, wars don’t only take a toll on human lives, but it started to impact all aspects of society. It devastates economies, political institutions, social and cultural structures and of course, causes human casualties . On a financial scale, banks, transactions, currencies halt to a stop when the country faces a crisis such as war. We are witness to many examples, notably the Russian-Ukraine war and the Sudan crisis. In today’s world, when we talk about power, we talk economies. Once the financial system is disrupted, a nation will plunge into instability and crisis.

The cause : A rise in conflicts

 It is a known fact that global conflicts are on the rise. As the graph below shows us, all regions of the world are involved: Africa, the Middle East, the Americas and Europe. And as these wars erupt continuously, with it the banking systems are deeply affected.

Atar (2024). Banks face turbulent times during war

Why do wars continue to grow?

As stated previously, wars nowadays don’t have the sole purpose of conquering and killing. The rules of the game have changed since the few decades. It’s about power. Everbody seeks more power. Which in today’s world mostly translates into economic hegemony. This explains why during wars, the financial system takes such a huge hit.

The consequence: A destabilizing factor in the banking market

Conflicts have a negative effect on the banking industry. The tensions between Russia and Ukraine, currently in war, is a good example of how the banking market changed in the region, but also impacted global transactions. Many examples showcase this situation such as:

A.     The Russian Ukraine war:

For instance, the European Union has adopted several sanctions against Russia: the country has seen its access to European capital markets cut, assets frozen and transactions have been banned on three Russian banks. In addition, multiple banks have been excluded from the SWIFT system, such as Rossiya Bank, Sovcombank or Sberbank. This system allows secured transactions between more than 11,000 financial institutions in over 200 countries. The exclusion of these banks strongly affect the Russian banking market that cannot operate with banks from other countries. We have also seen on the financial markets a ruble crisis in 2023. 

Griffiths, R. (2023, June 13).

We can see on the graph above the evolution of ruble to US dollar exchange rate price from March 2022 to May 2023. When the invasion of Ukraine started in March 2022, the market quickly reacted to the announce and the ruble decreased by 46% in only one month, before skyrocketing till more than 0,018, representing an evolution of 157% since the beginning of the war. Then, the price softened progressively to return to its pre-war level.

B.    Sudan crisis:

Another example that can be mentioned is the war occurring in Sudan. For two years now, the country has seen a horrif civil war unfold, causing turmoil and chaos among the population. The banking sector in the region has been extremely shaken up due to this tragic situation. Indeed, more than 100 banks were looted or destroyed, 70% of them were forced to close, resulting the rise of unemployment. Additionally, 38% of the banking capital of the capital Khartoum, was stolen, highlighting the severity of the financial crisis.

On another note, Sudan faces two major challenges. Firstly, communication networks have become unstable, leading to financial transactions disruptions. It is difficult for both banks and customers to enter in contact with each other and it does have an impact on banks’ revenues. Secondly, banks in the country are in debt. A lot of companies have been destroyed or strongly damaged, interrupting any activity. These circumstances make banks unable to repay their loans, leading to significant losses.   

Banks need to protect themselves during conflicts

As we mentioned earlier, geopolitical conflicts affect negatively the banking system. Banks need to protect themselves to survive in these situations and it is a real challenge.

Raiffeisen Bank, managed by the CEO Oleksandr Pysaruk, represents this case. The former central banker explained that preparation and anticipation were key. They noticed how their business continuity plan was outdated in November 2021, when the war started in the Donbas and Crimea regions. They reshaped it by focusing on critical functions of the bank, such as cybersecurity, that was the most important. They also worked on infrastructure, to make sure that the activity could keep going, even during conflict periods.

Another strategy was to prepare the call center in case of an unfavorable  scenario. So when Russia invaded Ukraine in February 2022, the call center was overloaded, and the bank employees were able to answer a huge number of questions from their clients, regarding the situation and this would not have been possible without preparation and anticipation. Raiffeisen Bank also made changes in its management, in order to make it for effective and able to take decisions faster.

Though, the plan worked well at 80%, according to the CEO. The most challenging part was to relocate the staff during an attack, since it created a full blackout and infrastructures were deeply damaged. The bank was not ready for this scenario and had to take quick decisions to survive.

Conclusion

Wars keep on ravaging the world. Reasons range from political to economic reasons. The financial sector takes a big hit during war. Inflations, instabilities, and a mere stop of the banking industry, plunges the nations into a deeper crisis.  We clearly saw this last example with the sharp decrease of the ruble at the beginning of the Russian invasion. This is why, when banks are exposed to war, they must come up with strategies to protect themselves, which can be a huge challenge. In these moments, preparation and anticipation are key to take the right decisions as fast as possible to avoid activity’s interruption and providing monetary aid to a population affected by these situations.

References

European Banking Authority, (2025). Enhancing Europe’s resilience against rising geopolitical risks https://www.eba.europa.eu/publications-and-media/events/enhancing-europes-resilience-against-rising-geopolitical-risks

Khalique, F. (2024). The banker. Ukraine war : How do you keep a bank going during a conflict ? https://www.thebanker.com/content/b47da2bd-e8b9-56df-9781-45a9c2801371

Atar (2024). Banks face turbulent times during war. https://atarnetwork.com/?p=5777 - :~:text=Over 100 bank branches across,to the brink of collapse.

Griffiths, R. (2023, June 13). Russian ruble crisis: 1998 vs today – What’s going wrong? Express. https://www.express.co.uk/news/world/1780367/russian-ruble-crisis-1998-2023-compared-spt