GENEVA (Reuters) - Small and mid-sized commodity traders are scrambling to find new lenders, including Asian and African banks, as dollar funding dries up from the big European banks that have been among their traditional creditors.
Former leaders in commodities finance including BNP Paribas (BNPP.PA) and Credit Agricole (CAGR.PA) are retrenching from the financing of transactions such as storing oil or arbitraging copper due to a lack of dollar financing and to capital requirements under stringent new rules known as Basel III.
The regulations - to be phased in from next year - require higher levels of capital and reserves at banks, which will make commodities lending more expensive.
"If you are big, that is what saves you. But for the mid-sized ones it is snip, snip on the credit lines. This is also choking off trade finance for new entrants, " said Edward George, a soft commodities analyst at pan-African bank Ecobank.
Official data is hard to come by, but George estimated that European banks' share of the global commodities trade finance business has shrunk from around 75 percent to 50 percent over the past few years.
The gap is being partly filled by new players such as his own firm, which plans to boost its trade finance to around $4 billion this year from $2.8 billion in 2011, Asian banks such as China Construction Bank and Middle Eastern players including First Gulf Bank FGB.AD.
But these new players operate on a much smaller scale, often offering just $5 million at a time for multi-million dollar deals, according to Michael Rolfe, global head of commodity trade finance at UniCredit (CRDI.MI).
"What is changing is the number of banks participating in revolving credit facilities. The list is getting longer as participation mounts from new banks that are smaller than the usual core players, " he told Reuters.
"Regional players want to break in. They are in producing regions, and these have good access to dollar financing, " he added.
TRADERS BECOME BANKERS
Top Geneva-based trading houses such as Gunvor and Mercuria have recently signed multi-million dollar funding deals via revolving credit facilities, showing their ability to source funding even as smaller players struggle.
Banks have competed fiercely to provide these facilities, and one trade source said, which has cut lending rates to around 2-2.50 percentage points above Libor.
The kindly Greenspan dropped interest rates like a stone channelling the worldâs trillions into Real Estate and commodities markets and providing the basis to generate equity bubbleâs son, baby bubble which we are now about to see come apart. This was great because the ever accommodative money lenders concocted new derivatives variants, hedge funds âwith whistles, bells and dancing galsâ, mortgage schemes that would turn any old style banker white as a ghost. In the world of junk finance, junk food, junk beverages, junk rap music, where junk status stocks are OK, we now had junk mortgages
THE GLOBAL CURRENCY WAR
The Finance Ministers of 187 nations began meeting in Washington, DC on Thursday, Oct. 7, 2010 to discuss the growing concerns that the world is now in the grip of an "international currency war" initiated by China. According to the liberal British newspaper, The Guardian, China's economic policies started the "war" by manipulating its own currency to an unrealistic low. In a media interview at the end of September, Brazil's Finance Minister, Guido Mantega coined the phrase, "international currency war," after the central banks in Japan, South Korea, Switzerland and Taiwan reduced the value of their currencies to make the commodities manufactured in their countries more attractive to foreign buyers