Bank regulation seen hurting commodity exporters

By: | at 08:00 PM | International Trade  

Tighter banking regulation could increase the borrowing costs of commodity exporters, including African companies which are already struggling to access needed trade financing, senior bankers said.

“Regulation is the biggest threat,” John MacNamara, global head of structured commodity finance at Deutsche Bank , told a commodities conference in Geneva.

The heads of trade finance at HSBC , Standard Chartered and JPMorgan said they were highly concerned that new tougher bank capital and liquidity standards backed by the G20 would pinch their economically pivotal business.

Jason Barass of JP Morgan said his number one preoccupation was how the rules from the Basel Committee of central bankers and regulators, to be implemented in major economies by the end of 2012, would hit his customers.

“It is not about another bank going down, it is about increased pricing due to tighted capital requirements,” he told the Euromoney conference, describing his reason for worry about the regulation known as “Basel III”.

Exporters require letters of credit and other loans to arrange for the shipment and delivery of their goods. About 80 percent of international trade is financed by some kind of credit, according to the World Trade Organisation.

WTO Director-General Pascal Lamy, who calls trade finance “the oil that keeps the wheels of global trade running”, told the Geneva conference on Wednesday that the financing was now largely available again, except in poorer countries where the liquidity dried up during the credit crisis and never returned.

“At the lower end of the market, there continue to be strong constraints,” Lamy said. “This is particularly true for sub-Saharan Africa where some financing capacity seems to have been lost. At this stage it is not possible to determine whether this is permanent or temporary.”

Last year it proved difficult to syndicate the pre-export financing for Ghana’s cocoa crop, for instance, he said.

The WTO has been convening experts from the $10 trillion market and in May brought bankers and regulators together to discuss how to ensure that regulation does not hamper trade finance.

Top bankers have said the Basel banking rules were likely to only worsen the strains that remain in trade finance.

Jean-Francois Lambert, the global head of structured trade finance at HSBC, said it was still unclear how the Basel III rules would impact lending patterns.

“We have a lot of uncertainties coming from the Basel regulations,” Lambert said. “As it stands now, I think we have a very nice environment and the business is developing nicely but I don’t think it is going to last.”

MacNamara of Deutsche Bank said regulators had not sought enough input from those providing letters of credit and other guarantees to allow commodities to be shipped internationally.

“The regulators don’t want to hear from us,” he said, adding the economic significance of trade finance remained largely underestimated. “What we do for a living may be very important to our clients and to the countries they do business in, but it is a drop in the ocean.” (Reuters)


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