US$ clearing ban for BNP affects S'pore transactions

[SINGAPORE] The one-year suspension of US dollar clearing services for BNP Paribas' New York branch will involve the oil-and-gas and commodity financing transactions booked in its Singapore branch - key sectors for banks that are active in trade financing here, such as BNP.

But BNP's Singapore chief executive, Pierre Veyres, also told BT that this should remain "neutral" for its clients.

"We are taking steps to appoint over the coming six months a third party clearer for USD payments, something that most local banks in Singapore as well as the major banks in the commodity space have already done," he said. "The transition should remain neutral for our clients."

The ban was announced yesterday as the French bank agreed to fork out a US$9 billion settlement charge over violations of US economic sanctions. The settlement - which includes guilty pleas of violation of US laws - is the single largest fine ever slapped on a bank for going against US economic sanctions.

These sanctions were linked to business relating to countries such as Sudan, Iran and Cuba. US regulators went after the bank over its scheme to cover up transactions in these countries that amounted to some US$30 billion.

The 12-month suspension of US dollar direct clearing through BNP's office in New York - to begin on Jan 1 next year - will be limited to the oil-and-gas, energy, and commodity finance businesses booked here.

Asked on the contributions of these businesses to the overall operations at BNP Singapore, Mr Veyres, who is also the head of the bank's South-east Asia operations, said: "The oil and gas industries are key for the economy. It is an important sector for BNP Paribas in which we intend to remain one of the leading banks in that space."

The concerns now are the extent this would affect client relationship with the bank, and how much it would cost BNP to outsource this clearing function - a big part of trade finance that is mainly US-dollar denominated. A bank that offers US dollar clearing converts foreign-currency payments for its customers into the greenback.

The suspension, said The Wall Street Journal, was a step back from revoking BNP's New York licence, which would have effectively shut down its US operations.

BNP said that it remains "fully committed to growing our business in Singapore and in Asia-Pacific".

A Singapore-based spokeswoman said that BNP is sticking with its plan to increase its revenue from the region to more than three billion euros (S$5.11 billion) by 2016.

The settlement will result in an exceptional charge of 5.8 billion euros to be booked in the second quarter of this year. This excluded a much smaller provision that had earlier been set aside of US$1 billion.

The bank told analysts and the media in France that it has enough funds to back the fine and penalties. BNP said that its core Tier-1 capital ratio as at end-June stood at around 10 per cent of its risk-weighted assets. This is based on finalised Basel III rules.