Markets Sep 30

Banks ignoring Asia commodity woes

Bankruptcies not deterring some banks from markets; frauds a ’surprise'

by Dmitry Zhdannikov
Banks ignoring Asia commodity woes
Citi "committed to growing the commodities business”.

LONDON: Bankruptcies in Asian commodities markets this year prompted banks to review some lending policies with trading houses, who nevertheless still enjoy abundant liquidity, several banking executives said on Tuesday.

The executives told the annual FT Commodities Global Summit that while some banks were reducing exposure to commodities following bankruptcies and extreme volatility as a result of the coronavirus pandemic, others were increasing theirs.

Nigel Scott, managing director of structured trade and commodity finance at Sumitomo Mitsui Banking Corporation, said it decided in March to grow its exposure in the next three years.

"We remain committed to commodities," he said, adding that "Asian frauds" had "taken the industry by surprise".

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Orith Azoulay, global head of green and sustainable finance at Natixis, which like SMBC had exposure to some Asian bankruptcies, said the French bank had selectively reduced its exposure but made a decision to remain active in commodities.

"There has been some reassessment over the past months for sure," she said.

Several including Dutch bank ABN Amro stopped or reduced trade and commodity finance in a bid to cut risks after the collapse of several traders including Hin Leong.

Christine McWilliams, global head of commodity and energy trade sales at Citi, said the bank was committed to growing the commodities business.

She said the crisis has shown that large traders with significant logistical assets often have advantages over smaller players.

However, Scott said most traders - big and small - still enjoyed strong funding from banks and often were not utilising their approved credit lines in full due to lower oil prices.

"The unleashing of liquidity at the end of the first quarter and the second quarter of this year... have not resulted in interbank restriction of liquidity and knock on effect on commodities traders," Scott said. 

  • Reuters