Banks to tighten norms for Singapore commodity sector

Banks to tighten lending practices for Singapore’s commodity sector, according to some sources. Commodity trade financiers in Singapore are teaming up to strengthen lending practices and improve transparency in the sector following a spate of defaults at trading firms, four sources with knowledge of the matter said.

Hin Leong Trading, one of Asia’s biggest oil traders, and three other Singapore-based commodity traders ran into severe financial difficulties this year, hit hard as oil prices crashed and fuel demand slumped amid the coronavirus pandemic.

Commodity trade finance chiefs from about 20 banks including HSBC Holdings, DBS Group Holdings and OCBC, have formed a working group to propose new guidelines, the sources told Reuters on condition of anonymity as the news has not been made public.

One proposal under 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 sources said. The move comes after investigations into commodity trading firms revealed that multiple layers of financing from different lenders were obtained for the same inventory.

Commodity trading is big business in Singapore where it accounts for 4.5% of the city-state’s GDP. 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 which critics say need more regulatory oversight.

Authorities, which have leant their backing to the working group include the Monetary Authority of Singapore (MAS), Enterprise Singapore, an agency that promotes trade, and the Accounting and Corporate Regulatory Authority.

HSBC, DBS and OCBC declined to comment. The MAS and Enterprise Singapore said they would issue a response later on Thursday.

Scorched by losses, several banks have 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 a total of $3.8 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, which collapsed with $1.55 billion in outstanding liabilities to dozens of creditors.

According a report by its court-appointed supervisor, 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.

Meanwhile, Singapore’s competition authority said it had raised concerns about the London Stock Exchange’s proposed $27 billion acquisition of data and analytics company Refinitiv in an initial review.

The Competition and Consumer Commission of Singapore (CCCS) cited concern about the provision of foreign exchange benchmarks by the merged entity and said it would need to conduct a second phase review to consider the matter in detail.

“Third-party feedback revealed concerns as to whether the merged entity will continue to supply foreign exchange benchmarks at fair, reasonable and non-discriminatory terms to rival providers in the market for the global supply of index licensing and derivatives clearing services to customers globally (including Singapore),” it said. LSE and Refinitiv declined to comment. European Union antitrust regulators, which have launched a four-month investigation into the deal, warned in June about the possible anti-competitive effects of the acquisition.

CCCS said it was unable to determine at this stage whether competitors would be able to mitigate the risk of foreclosure by the merged entity of access to the WM/R FX benchmarks.

There was also insufficient information available for CCCS to determine if the competition concerns could be addressed through any existing regulations overseas on the global supply of the WM/R FX benchmarks, CCCS said. Thomson Reuters, which owns Reuters News, has a 45% stake in Refinitiv.  Seperately, Singapore’s state investor Temasek and other investors are injecting $250 million into German biotech company BioNTech, which is developing an experimental vaccine against the coronavirus with pharmaceutical giant Pfizer.

The investment, which BioNTech said was via a private placement, reflects heightened investor interest in the race to develop an agent that will stop the pandemic and sent shares in biotech firms such as Moderna and Novavax soaring this year.

Reuters