Singapore Banks Join Forces to Reduce Commodity Lending Risk

Source: Regulation Asia Editors, Regulation Asia 2020-07-06

Some 20 banks in Singapore have set up a working group to propose new guidelines to improve lending practices and transparency for the commodity sector.

Singapore banks are working together to develop a set of best practices to enhance commodity financing standards in the city-state, MAS (Monetary Authority of Singapore) affirmed on Tuesday (2 July).

In a joint statement with Enterprise Singapore, ACRA (Accounting and Corporate Regulatory Authority) and ABS (Association of Banks in Singapore), MAS said the initative will strengthen Singapore’s resilience, relevance and competitiveness as a global commodities trading hub.

“MAS strongly supports the development of best practices in commodity financing to promote transparency and trust in the sector,” said Assistant Managing Director, Banking & Insurance, Ho Hern Shin. “These practices will strengthen banks’ lending standards and facilitate continued lending to trading companies.”

The statement follows a Reuters report claiming that some 20 banks in Singapore including HSBC, DBS and OCBC had set up a working group to propose new guidelines to improve lending practices and transparency for the commodity sector.

“These best practices will help to uplift transparency and trust in commodities financing, ” said ABS Director Ong-Ang Ai Boon.

One proposal said to be under discussion was the establishment of a central registry for collateral pledged against loans. This could help improve transparency, reduce risks for banks, and prevent commodity trading firms from using the same inventory to obtain loans from multiple lenders.

The move to strengthen lift reduce the risk of lending to the commodity sector is a response to the high-profile collapse of oil trader Hin Leong Trading, whose founder admitted in April that he directed the company to hide USD 800 million in losses generated from speculating in oil futures over the years.

Hin Leong owed an estimated USD 3.8 billion to a total 23 banks, including HSBC, ABN Amro, DBS, Societe Generale and OCBC.

Three other Singapore-based commodity trades also ran into financial difficulties as a result of April’s oil price crash and lower fuel demand, including ZenRock Commodities, which is said to have used the same cargo to secure financing from ten banks.

MAS

ESG

ACRA

ABS

Singapore Banks Join Forces to Reduce Commodity Lending Risk

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