Banks in S'pore forming trade finance registry after commodity defaults

Some of the world's biggest banks in commodity trade financing are creating a registry here to mitigate the risk of fraud and boost transparency, after losing billions of dollars owing to a spate of defaults.

Banks have reduced their commodities business this year to cut risk following collapses, including that of Singapore's Hin Leong Trading, which shocked lenders after instances of financial trouble were laid bare by the coronavirus crisis.

DBS Bank and Standard Chartered said yesterday that they are leading a group of 12 other banks here to create a secure central database to access records of trade transactions financed across lenders in Singapore.

"This mitigates against duplicate financing from different bank lenders for the same trade inventory, leading to greater trust and confidence among banks and traders alike," said DBS and StanChart.

They noted that banks are now able to conduct validations only within a single customer entity, or across their individual banking network, with no view of what other banks have financed or undertaken payment obligation against.

"This information asymmetry is a key gap that can only be addressed with a trade finance registry that facilitates collaboration across industry players and government agencies," they added.

Ms Ho Hern Shin, an assistant managing director at the Monetary Authority of Singapore, added: "A registry strengthens trade financing banks' ability to avoid duplicate financing, and facilitates more sustained credit flow."

Reuters reported in July that banks are teaming up to strengthen lending practices and improve transparency in the sector.

  • 14 

  • Number of banks creating a trade finance registry in Singapore.

Mr Sriram Muthukrishnan, DBS' global head of trade product management, said: "The registry marks an important step towards fostering greater transparency through collaboration and strengthening lending practices in Singapore's banking sector, while ensuring a secure operating environment for the industry as we progress towards an increasingly digital trade future."

The other participating banks are ABN Amro, ANZ, CIMB, Deutsche Bank, ICICI, Lloyds, Maybank, Natixis, OCBC Bank, Rabobank, SMBC and United Overseas Bank.

REUTERS, THE BUSINESS TIMES

A version of this article appeared in the print edition of The Straits Times on October 07, 2020, with the headline 'Banks in S'pore forming trade finance registry after commodity defaults'. Subscribe