Commodity trade suffers as French curb credit
Trade finance is a huge business, with lending hitting $114bn in the first nine months, down 6 per cent year-on-year, according to Dealogic.
The European banking crisis is spilling over into commodities trading with French banks, the main financiers of trading houses, reining in their lending.
BNP Paribas and a handful of other European banks, including Société Générale and Crédit Agricole, provide most of the credit lines that underpin the business of the publicity shy Swiss-based traders that dominate commodities markets.
BNP’s Geneva branch alone accounts for up to a quarter of the sector’s credit, according to industry estimates. The bank said commodity trade finance activities “will be part” of its “global deleveraging effort”, but it “had no intention to exit the business”.
Industry executives and bankers said the top traders, including Glencore, Vitol and Cargill, were unlikely to be affected by the credit crunch but small and medium-sized trading houses were already suffering.
Harris Antoniou, head of energy, commodities and transportation at ABN Amro in Amsterdam, said: “There is nervousness in the market. Mid-sized companies in particular feel there may be a need to diversify their funding sources.”
The drive by French banks to reduce the size of their balance sheets is exacerbating the adverse impact on commodities trade finance of the new Basel III capital rules. The new regulation, which phases in over the next seven years, makes the issuance of letters of credit far more onerous than in the past. While banks needed to hold capital equal to just 20 per cent of the value of letters of credit under the old Basel II rules, the new agreement raises the bar to 100 per cent, greatly increasing the cost of lending.
No comments:
Post a Comment
Commented on MasterMetals