Banks seek trade finance revamp after billions in losses: report

Lenders are struggling to reclaim loans as big traders trick banks with empty promises.

When Credit Agricole and HSBC issued a payment guarantee for a $76.5m fuel purchase from a Singapore trader in March, they unwittingly became the latest victims in a series of trade finance scandals that have led to more than $9b in potential losses for global lenders, reports Bloomberg.

At the same time that Hin Leong Trading was pledging the fuel to back the loan, it allegedly agreed to sell the same cargo to another trader, who sought letters of credit from three banks including Credit Agricole.

For banks financing the opaque world of commodities trading in Singapore, Hin Leong isn’t an isolated case. The trading hub has seen a clutch of failures in the past year with lenders struggling to reclaim loans, alleging they were tricked by forged documents and by traders pledging cargoes to multiple banks.

“It’s tumbling down like a house of cards - everybody is caught in the whirlwind,” said Robson Lee, a corporate finance law partner at Gibson, Dunn & Crutcher LLP’s Singapore office.

Since 2019, a total of six trading finance companies went awry. Four of these cases were just for 2020 alone: Agritrade, whom ING accused of “overlapping” shipping lists to get financing from several banks, and who spelled at total of $670m losses for 18 banks; Zenrock, who owe banks $670m; Hontop Energy, who just last week CIMB alleged to be conducting “suspicious” oil deals, is reportedly $473m in debt; and Hin Leong Trading, which is saddled with $5.5b in debt.

But rather than flee the $18t trade finance business, most banks are now taking steps to fight back. Singapore lenders are considering a central database to track collateral, according to a person familiar with the matter, whilst banks including ABN Amro Bank NV are stepping up vigilance.