Exclusive: Banks in Singapore in talks to tighten lending practices for troubled commodity sector
July 2, 2020
By Roslan Khasawneh, Jessica Jaganathan and Anshuman Daga
SINGAPORE (Reuters) – Commodity trade financiers in Singapore are teaming up to strengthen lending practices and improve transparency in the sector following a spate of defaults at trading firms, four sources with knowledge of the matter said.
Hin Leong Trading Pte Ltd, one of Asia’s biggest oil traders, and three other Singapore-based commodity traders ran into severe financial difficulties this year, hit hard as oil prices crashed and fuel demand slumped amid the coronavirus pandemic.
Commodity trade finance chiefs from about 20 banks including HSBC Holdings Plc, DBS Group Holdings Ltd and OCBC, have formed a working group to propose new guidelines, the sources told Reuters on condition of anonymity as the news has not been made public.
One proposal under discussion is the setting up of a central registry for collateral pledged in loans which could help improve transparency and reduce risks for banks, three sources said. The move comes after investigations into commodity trading firms revealed that multiple layers of financing from different lenders were obtained for the same inventory.
Commodity trading is big business in Singapore where it accounts for 4.5% of the city-state’s GDP. The working group is the strongest response yet by lenders and regulators to shore up confidence in a sector that contains many privately held firms and complex supply chains which critics say need more regulatory oversight.
Authorities which have leant their backing to the working group include the Monetary Authority of Singapore (MAS), Enterprise Singapore, an agency that promotes trade, and the Accounting and Corporate Regulatory Authority.
HSBC, DBS and OCBC declined to comment. The MAS and Enterprise Singapore said they would issue a response later on Thursday.
Scorched by losses, several banks have tightened credit and stepped up scrutiny of existing loans at commodity firms which has played a part in reducing trade volumes in the region.
Nearly two dozen banks, including HSBC, DBS, OCBC, Societe Generale and ABN AMRO, are owed a total of $3.8 billion by Hin Leong, whose founder admitted to hiding hundreds of millions of dollars in losses over several years.
Losses were also large at Agritrade International Pte Ltd which collapsed with $1.55 billion in outstanding liabilities to dozens of creditors.
According a report by its court-appointed supervisor, Hin Leong obtained financing from various banks for cargoes of oil which did not exist. Agritrade International gained multiple financing for the same cargoes from banks by providing duplicate documents, Dutch bank ING said in a court document.
Many European lenders are also part of the working group, two of the sources said.
(Reporting by Roslan Khasawneh, Jessica Jaganathan and Anshuman Daga; Writing by Anshuman Daga; Editing by Florence Tan and Edwina Gibbs)