* Cost of finance increases in line with greater risk
* Finance issues could concentrate grain trade in few hands
By Sarah McFarlane
GENEVA, March 21 (Reuters) - The crisis in Ukraine is hurting its small grain traders as they struggle to get financing from local banks, forcing them to seek loans from bigger, mostly international trade houses, traders said.
Growing tensions in East-West relations over Russia's moves to annex the Black Sea Crimea peninsula have weakened Ukraine's hryvnia currency and its already fragile economy, leading its banks to cut back on lending.
Grain exports have been maintained in Ukraine, which is forecast to be the world's second-largest grain exporter in 2013/14 behind the United States.
But its traders are scrambling to find funding, and their borrowing costs are rising. They could ultimately lose market share to the bigger houses.
"We are doing some financing for some players, but it's based on strong relationships, and clearly there's a lot more risk today," a trader at an international commodities trade house said.
One trader specialising in Ukrainian grains estimated that trade houses were charging 7 to 11 percent per annum for dollar-denominated 30-to-40-day loans, up from 5 to 8 percent paid to local banks before the crisis.
"We have clients who are not able to pay, so we have to find a solution. We are partly financing our buyers," the Ukraine trader said.
"But there's not so many like us who can afford financing."
It's not unusual for larger trade houses to selectively provide limited financing to smaller traders, but the reduced availability of bank finance has driven up this activity.
"Traders will lend very much on a case-by-case basis," a European grain trader said.
Some traders said that financing issues could concentrate grain trade in the hands of the strongest trade houses.
"I think the people involved in this business with strong financial resources and good cash flow, they will gain market share over weaker smaller companies who don't have the credit lines, the trade financing," said Hans Stoldt, director at trade house Ameropa.
For the current campaign to end-June 2014, around 4 million tonnes of corn remains to be shipped, which will require export financing.
"I would not be surprised if a number of banks raised their prices (for the cost of financing exports), (and) I would not exclude that we would do that," said Karel Valken, global head of trade and commodity finance at Rabobank.
But most traders said their focus now is turning to the 2014/2015 season.
Farmers are now planting crops for the coming season and need financing to buy seed and fertiliser. Later in the season, they will need funding for pesticides, fuel and labour for harvesting and for exports.
In the worst case, Ukraine's coming corn crop could drop by a third to 20 million tonnes as the crisis prompts banks to raise lending costs and reduce their exposure, traders and analysts have said. (editing by Jane Baird)