European banks have grown wary of financing commodity traders, raising borrowing costs and endangering smaller firms in the market for raw materials.
ABN Amro Bank NV is pulling out of trade and commodity finance altogether. ING Groep NV will likely enforce stricter monitoring and control over commodity deals it finances to reduce risks, said a person familiar with the matter. BNP Paribas SA, formerly a powerhouse in commodity-trade finance, is scaling back, a person familiar with the company said.
Banks are responding to the rout in oil prices, a spate of alleged frauds, a drift into riskier forms of lending and investor pressure over climate change. Their retreat is likely to concentrate the business of transporting oil, metal and grain in the hands of large traders that still have access to cheap funding.
Smaller traders, in contrast, are finding it increasingly difficult to borrow from banks, prompting some of them to seek out new sources of financing. That could come from their larger rivals or from trade-finance funds. Some will be pushed out of business altogether, according to industry executives, bankers and lawyers.
“The biggest impact will be on smaller players,” said Jarek Kozlowski, chief financial officer at power-and-gas trader TrailStone Group. “They will have difficulty finding funding.”