Asian bankruptcies do not deter some banks from commodity markets

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

Executives told the annual FT Commodities World Summit that while some banks are reducing their exposure to commodities following bankruptcies and extreme volatility in the wake of the coronavirus pandemic, others are increasing theirs.

Nigel Scott, managing director of structured trading and commodity finance at Sumitomo Mitsui Banking Corporation, said he decided in March to increase his exposure over the next three years.

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

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

“There has been some reassessment over the last few months for sure,” she said.

Several, including Dutch bank ABN Amro, halted or reduced trade and commodity financing in an attempt to reduce risk after the collapse of several traders, including Hin Leong.

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

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

However, Scott said most traders – large and small – still have strong funding from banks and often do not fully utilize their approved lines of credit due to falling oil prices.

“The unleashed liquidity at the end of the first quarter and the second quarter of this year (…) has not resulted in any interbank liquidity restriction and has not had an effect on commodity traders.” Scott said.


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