(Corrects paragraph 18 to show team will be led by Michel Layat)
* UBS lures talent from French giant BNP Paribas
* Regional Swiss banks target emerging markets
* New banks, traders start moving into sector
By Emma Farge
GENEVA, April 13 (Reuters) - Swiss banks are expanding aggressively in commodity trade finance and have lured top talent away from dominant French rivals as refinancing woes force them to curb their activities.
Commodity trade finance, the low-risk and low-margin business of lending cash to arbitrage copper shipments and import grain, has been in crisis since French banks started cutting back last year due to a shortage of dollar liquidity.
Credit Agricole withdrew from the market in December and market leader BNP Paribas has cut jobs, threatening small trading shops and helping to support high commodity prices.
BNP Paribas has shed two top executives in trade finance Pascal-Olivier Marclay and Jacques-Olivier Thomman since late 2011 and reduced its Swiss staff, industry sources said.
It said earlier this month its consolidation plans are now complete and that it is planning to launch a new trade finance fund.
But industry experts doubt that French banks, which formerly accounted for about half of the $1500 billion a year in global lending, will be able to recoup lost ground as others fight for market share.
"The difficulty of French banks to refinance themselves in dollars has pushed some clients to knock on the doors of Swiss banks," said Philippe Steiner, Geneva-based commodity trade finance consultant.
"UBS has shown a high interest in acquiring the mid and upper range former Soviet Union trading specialists in Switzerland that were the historical client base for the French."
BNP's Marclay has since joined UBS as head of commodity trade finance and about nine other executives have joined as part of a broader plan to bolster its team in Geneva and Lugano, industry sources said.
Credit Suisse, already active in trade finance for 20 years, said it has added five new relationship manager roles in Geneva and Zurich since the start of the year, boosting its client-facing Swiss team by around 10 percent.
"The partial withdrawal of certain banks creates additional opportunities for Credit Suisse to acquire new clients and to expand the business activities with existing clients," said a spokesman for Credit Suisse.
UBS declined to comment.
The key advantage of Swiss banks is that they are capitalised in Francs and costs for dollar-based funding, the dominant currency in commodities markets, are relatively low. They are also located next to top clients like Glencore and Cargill in the low-tax trading hubs of Geneva and Zug.
Industry sources also said regional banks La Banque Cantonale de Geneve and Banque Cantonale Vaudoise are also recruiting as part of a strategy to target growth in emerging markets in Asia and South America.
Niaz Haq, head of banking for recruitment firm Serendi, said he expected French banks to continue to shed staff due to both lower salaries and a sense of diminished opportunities.
"The French banking staff will continue to be good sources of top flight candidates for growing banks," he said.
Banks in emerging markets like India are also seen as likely new entrants in the field since they will have an interest in facilitating purchases of raw materials. Hinduja Group's Swiss-based private banking arm said on Thursday it plans to double its commodity trade finance team by hiring five new staff.
Industry sources told Reuters the team would be led by Michel Layat, and his deputy will be Alexandre Currit, formerly at Switzerland's Banque de Commerce et de Placements.
Trading houses are also seen as prime candidates to snatch some of the French banks' share following the example of Trafigura's fund unit Galena.
Some traders already provide financing to customers through pre-production offtake-linked loans where a buyer can borrow money temporarily ahead of a purchase from the trading house's own mine or refinery.
Matthew Parish, partner at Geneva-based law firm Holman Fenwick Willan, said that trading houses may have the upper hand on banks as they may be exempt from upcoming Basel III regulations on capital requirements.
"Traders could start financing themselves, or each other," said Matthew Parish, partner at Geneva-based law firm Holman Fenwick Willan. "Larger traders could provide funds to smaller ones, to keep the market liquid." (Editing by William Hardy)