MELBOURNE • Chinese banks are stepping up lending to mid-sized metals traders in Singapore, pushing into a gap in the market as United States regulations and fading appetite for risk drive Western rivals to focus on larger commodity merchants, metals industry sources said.
The move adds to a broader push by Chinese banks overseas, and comes as markets for metals such as zinc and aluminium show signs of revival after half-a-decade in the doldrums. It is also likely to help efforts by the world's No. 2 economy to boost its influence in the region's supply chain, with Singapore being a major hub for trade in base metals.
Three executives at medium-sized metals trading companies in Singapore said they had in the past few months been approached by Bank of China International (BOCI), a unit of Bank of China, with two of them securing new credit lines.
Those two borrowers said they had also been approached by the Singapore corporate unit of Industrial and Commercial Bank of China (ICBC). The executives did not want to be identified due to the sensitivity of the issue.
ICBC said it was unable to make an immediate comment. BOCI would not comment, although it said in June that it was broadly looking to expand its financing business for commodity clients.
"Before, Chinese banks wanted to support the Chinese firms in Singapore, but now, they are extending their reach to offshore trading houses, even the ones with no domestic market access," said the executive who had not taken a loan.
There are about 20 mid-sized metals traders in Singapore, such as UIL Singapore and Raffemet. They are mostly backed by Swiss, Chinese, Japanese or Indian firms.
The expansion in Chinese lending comes as many Western banks have been hit by regulations such as the Dodd-Frank financial laws in the US that have raised their capital holding requirements, pushing them to pare back on lending to all but their largest clients in the capital-intensive industry.
"(BOCI) have offered me a credit limit. It's an extremely competitive rate," said one of the executives in Singapore. He said the bank was offering a flexible credit line at 1 to 1.5 per cent per year on top of the London Interbank Offered Rate (Libor), which is often used as a benchmark interest rate in loans.
Three-month Libor this week stood at about 0.88 per cent. That compares with wider bank lending rates to the industry of 2.5 to 3.5 per cent over Libor, the executive said.
But the executive, who had not taken out a credit line, warned that Chinese lenders would not simply hoover up clients as their lack of experience in the sector, compared with "first-class" Western banks, meant their client base would initially be limited to those struggling for other options. "You have a risk that (Chinese banks) don't understand something and that could result in a delay in payment, mucking up your cash flow," he said. "They will not necessarily take market share just like that."