Banks in Singapore to tighten commodity financing practices after collapse of oil trader Hin Leong

Commodity trade finance chiefs from about 20 banks have formed a working group to propose new guidelines.
Commodity trade finance chiefs from about 20 banks have formed a working group to propose new guidelines.PHOTO: REUTERS

SINGAPORE (REUTERS) - Commodity trade financiers in Singapore are teaming up to improve lending practices and transparency after a spate of defaults.

Hin Leong Trading Pte Ltd, one of Asia's biggest oil traders, and three other Singapore-based commodity traders ran into financial difficulties this year as oil prices crashed and the coronavirus crisis hit fuel demand.

Commodity trading accounts for 4.5 per cent of Singapore's gross domestic product and 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.

In a joint statement in response to questions from Reuters, the Monetary Authority of Singapore (MAS), Enterprise Singapore (ESG), the Accounting and Corporate Regulatory Authority (ACRA) and the Association of Banks in Singapore (ABS) confirmed the moves to boost the city-state's commodity financing standards.

"These practices will strengthen banks' lending standards and facilitate continued lending to trading companies," Ho Hern Shin, assistant managing director, banking and insurance, at the MAS, said in the statement on Thursday.

Commodity trade finance chiefs from about 20 banks including HSBC, DBS and OCBC, have formed a working group to propose new guidelines, the sources earlier told Reuters on condition of anonymity.

HSBC, DBS and OCBC declined to comment.

One proposal under early 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 of the sources said. Investigations into commodity trading firms revealed that multiple layers of financing from different lenders were obtained for the same inventory.

The moves are "the first set of best practices in commodities financing that banks in Singapore are developing with the trading community, with support from the government agencies", said ABS director Ong-Ang Ai Boon.

 
 

"These best practices will help to uplift transparency and trust in commodities financing," Ms Ong-Ang said.

Several banks have already 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 US$3.8 billion (S$5.3 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 US$1.55 billion in outstanding liabilities.

A report by its court-appointed supervisor said 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.