Fraud seen as major threat to commodity trade finance

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Fraud is driving banks out of commodity trade finance with financial stress linked to the COVID-19 pandemic exposing how widespread it had become, a conference organised by the International Grains Council was told on Tuesday.

Jean-Francois Lambert, founding partner at Lambert Commodities, told the IGC’s annual conference that the situation was more serious than during the 2008 financial crisis.

“We are in a similar situation but even more critical because banks are withdrawing (rather than scaling back operations),” he said.

“When banks are withdrawing, because of fraud, because of situations like that, you can imagine they are not going to return tomorrow morning.”

Dutch lender ABN AMRO NV announced in August last year it was pulling out of commodity trade finance.

“It is a very difficult sector for banks to be profitable,” said Paul Cauberg, Head Agri Commodities EMEA at ABN AMRO NV, adding fraud in centres such as Dubai, Singapore and Rotterdam had tied into the struggles with profitability.

The Swiss arm of BNP Paribas announced the following month it was closing its commodity trade finance business after the coronavirus crisis led to defaults and exposed a series of frauds.

Lambert said it would be a real challenge to keep small and medium size enterprises (SMEs) in commodities.

“In the long-term I am worried because I think the banks will focus on financing the larger players,” Cauberg said adding it meant only one credit analysis and reduced risks from issues such as tax evasion and money laundering.
Source: Reuters (Reporting by Nigel Hunt; Editing by Kirsten Donovan)