Banking turmoil will not be major hit to commodities finance: CFOs

THE recent rout in bank shares will not result in a significant hit to commodities finance for major trading firms, the chief financial officers of the biggest energy traders told the Financial Times Commodities Global Summit on Wednesday (Mar 22).

Speaking at the event, the chief financial officers of Swiss traders Trafigura, Vitol, Gunvor, Mercuria and US firm Castleton said that they did not anticipate a finance squeeze, particularly as commodity prices have dropped.

Last year was defined by extreme price spikes after Russia’s invasion of Ukraine and margin calls – cash requirements to cover hedge positions – that created dysfunctional energy and metals markets as participants were priced out.

“We don’t have the pressures of last year,” Vitol chief financial officer Jeff Dellapina said.

Brent crude oil prices hit their lowest since 2021 last week on concerns that the rout in bank shares could trigger a global recession and cut fuel demand.

Share prices have since ticked higher after a historic deal in which Switzerland’s largest bank UBS agreed to buy troubled rival Credit Suisse.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

However, Mercuria chief financial officer Guillaume Vermersch cautioned that there could be a squeeze on smaller trading firms, including in Switzerland, that depended on credit lines from both UBS and Credit Suisse.

Industry executives on the sidelines of the conference said that traders may not be able to retain lines equivalent to those they have with both lenders once the buyout completes, though Credit Suisse had become a smaller player in commodity finance in recent years.

Global banks had already tightened client controls and balance sheet requirements after a bruising series of defaults and fraud scandals largely among Asian commodity players in 2020.

Dutch bank ABN Amro – a behemoth in the sector – announced its departure from the space, while others have restricted financing for fossil fuels in favour of renewables. ING said that it would look to cut the volume of oil and gas trades it finances by 19 per cent by 2030.

Sanctions on Russian banks have compounded the issue. While some Africa and Middle Eastern banks and funds have stepped in, interest rates are higher and some gaps remain.

Trafigura chief financial officer Christophe Salmon said that he did not expect banks’ appetite for financing commodities trade to wane after the collapse of Credit Suisse, adding that the entry of export credit agencies is a major development in commodities finance markets.

“We managed to raise close to US$5 billion of competitive term funding with the support of these export agencies,” he said.

Trafigura has entered into several energy and metals deals in recent months involving German and Italian export credit agencies.

“On banks’ appetite for trading firms, let’s not forget trading firms give banks a lot of business opportunities from hedging to trade finance, mergers and acquisitions, and so on,” he added. REUTERS