Trade finance: Fines do not dent ING’s commodities zeal

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By:
Dominic O’Neill
Published on:

Recommits to holding top spot; mid-tier of most concern as oil traders struggle.

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Commodity trade finance, from shipments of Argentine soybeans to Kazakh oil, is one of the few areas of international banking where Europeans maintain a clear lead.

The French and even the Dutch still dominate, despite swingeing cuts to their global networks and balance sheets during the past decade.

Although the deals tend to be private, and the banks are reticent about revealing their exposure,industry sources reckon the biggest bank in this business is now ING. Société Générale is a clear second, albeit stronger in Africa.

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Anthony van Vliet,
ING

Commitment, and critical mass, is crucial, according to Anthony van Vliet, ING’s global head of trade and commodity finance.

“The more you have informational advantages, the more you understand your clients’ businesses,” he says. “It allows you to be more responsive to their needs.”

However, the consensus opinion is also that ING only got to the top thanks to the relative pullback by BNP Paribas. The French bank was even more dominant than ING, sources say, until it fell foul of US sanctions – to the tune of an $8.8 billion settlement fee and $140 million fine – in 2014.

Such costly scandals have inevitably forced other European banks to be more circumspect in commodities trading, opening space for non-banks and regional lenders.

For example, European banks still shun commodities trade with Sudan, despite the lifting of US sanctions in January. While the Sudanese economy struggles on with the legacy of sanctions, Middle Eastern banks have stepped up.

Compared to manufactured goods, international trade in commodities – although of fundamental importance – naturally happens to a greater extent in poorer countries, often with weak institutions and sometimes questionable relations with the US.

Shipments are also larger as they cannot go via containers. A typical crude-oil cargo might be worth about $80 million. Banks can consequently run into nerve-racking situations, whether it is falling victim to fraud, managing the caprices of corrupt officials, or worse.

Criminal cases in Switzerland and the US this year have reinforced the industry’s insalubrious image.


We have been serving our clients in good times and bad,” he says. “We are committed to the commodity sector, and we’re managing it as a global franchise 
 - Anthony van Vliet, ING

New bank-specific litigation this year suggests lenders will only have to do more to police their international operations.

While the Danske Bank-Estonia money-laundering scandal has deepened, Standard Chartered is reportedly negotiating a settlement over Iran sanctions breaches by its Dubai branch even after a 2012 fine for the same thing.

In September, ING agreed to pay €775 million to Dutch prosecutors for failing to prevent money laundering, sparking the resignation of chief financial officer Koos Timmermans.

Unlike BNP Paribas’s fine, none of these transactions went through its subsidiary in Geneva – a commodity trading hub – although it did concern clients and payments in far-flung countries such as Suriname and Uzbekistan.

Core

Will ING head the same way as BNP Paribas?

The head of trade finance at one of ING’s biggest commodities trading clients tells Euromoney he expects commodity trade finance to remain core to ING. However, in recent and perhaps coming months, the source says this issue has dented ING’s enthusiasm.

The recent fines will surely only encourage banks, not least ING, to spend more ensuring their commodity trade businesses do not get into trouble. Even so, Van Vliet denies ING is pulling back.

“We have been serving our clients in good times and bad,” he says. “We are committed to the commodity sector, and we’re managing it as a global franchise.”

ING has built up this business since the late 1980s, and has commodity trade finance teams in eight offices around the world.

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Isabel Fernandez
Niemann, ING

The bank’s board gave its support to Isabel Fernandez Niemann, head of wholesale banking since late 2016, in her decision to uphold its leadership in commodity trade finance. That has not changed, says Van Vliet.

ING hit the headlines in Egypt this July for suspending financial backing for trade with the Egyptian state wheat buyer GASC, according to Bloomberg – but has since backed a similar shipment to Egypt, the world’s biggest importer of the grain.

Van Vliet adds that ING does not just support the diverse financial needs of the big houses, but also backs the more agile-though-less-capitalized traders that populate the shores of Geneva, where it has about half its 200-strong global front-office staff in commodities trade finance.

Lifeblood

Cheap liquidity is these traders’ lifeblood. During the past decade, banks’ lesser willingness to deal with the smaller traders has contributed to the growth of a handful of big traders, sources say.

Some traders, such as Glencore, Trafigura or Vitol, have amassed relationships with more than 100 banks, and credit lines in the tens of billions of dollars.

Yet coverage of the emerging smaller players is part of ING’s global strategy, and it is also higher margin, even if it needs extra legwork to check newer firms’ ownership and backgrounds.

“Serving the smaller traders is an important part of our business diversification and provides key intelligence about trade flows,” says Van Vliet.

Backwardation in the oil market this year – where lower futures than spot prices has increased the cost of holding physical commodities, weighing on traders’ profits – has also failed to dampen ING’s appetite.

Exposures to the mid-sized firms, in any case, might harbour more credit risk for banks, as they are better able than niche firms to source corporate loans – rather than the short-term secured facilities on which commodity trade finance is traditionally based, outside the US.