Rising Prospects as Bank Pullback From Commodity Trade Finance

A funding pullout by banks facilitates leveraging the widening hole in commodity trade finance to the specialist funds.

The string of industry blow-ups has demonstrated how multiple banks, including ABN Amro Bank NV, Societe Generale SA, have been bound to cut their role in funding the international trade in natural resources. And how the surge in commodities from copper to wheat raises the requirement for loans while those cheap credit lines are drying up.

The previous year's trading breakdowns, topping in the destruction of fuel oil trader Hin Leong Trading (Pte) Ltd., are likewise revving the banks' transition since 2008 to concentrate on the drive's highest deck, while undersized trading places are consolidated. That's furnishing a prospect for reserves, although, for the juncture, their existence is merely a fraction of the prominent banks, which can have orientation surpassing $20 billion.

According to the founder of London-based Kimura Capital, which has underwritten billions of dollars of loans this year, Kristofer Tremaine, there has been a surge in the spectrum and quality of commodities traders striving for non-bank financing with the withdrawal of traditional lenders.

He even affirmed the demand is set to develop, with the bridging financing gap for global trade increasing since the pandemic provoked.

Tightening Practices

The incidents of the past few years emphasize that funds striving for growth will likewise require tightening their credit approaches with smaller clients, according to the business development manager at GUUD Finance, a digital platform for corporate borrowers, Eric Chen.

He asserted that the question remains intact, whether funds, which generally charge higher interest rates, can proffer the exact function as banks. While Kimura, which is observing further growth after more than doubling its investment base this year, questions whether funds can suffice the gap renounced by banks.

"We'll always be able to provide specialized finance, and our investors will make money, but we're not going to plug a multi-trillion-dollar hole in the market," said Kimura founder Tremaine.