Chinese lenders target Singapore metals merchants as trade push grows

MELBOURNE (Reuters) - Chinese banks are stepping up lending to midsize metals traders in Singapore, pushing into a gap in the market as U.S. regulations and fading appetite for risk drive Western rivals to focus on larger commodity merchants, metals industry sources said.

Industrial and Commercial Bank of China Ltd (ICBC)'s logo is seen at its branch in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon/File Photo

The move adds to a broader push by Chinese banks overseas and comes as markets for metals such as zinc and aluminum show signs of revival after half-a-decade in the doldrums.

It is also likely to help efforts by the world’s No. 2 economy to boost its influence in the region’s supply chain, with Singapore a major hub for trade in base metals, used in everything from batteries to construction.

Three executives at medium-sized metals trading companies in Singapore told Reuters they had in the past few months been approached by Bank of China International (BOCI), a unit of Bank of China, with two of those securing new credit lines.

Those two borrowers said they had also been approached by the Singapore corporate unit of Industrial and Commercial Bank of China (ICBC). None of the executives wanted to be identified due to the sensitivity of the issue.

ICBC said it was unable to make immediate comment. BOCI would not comment, although it told Reuters in June that it was broadly looking to expand its financing business for commodity clients.

“Before they wanted to support the Chinese firms in Singapore, but now they are extending to the offshore trading houses, even ones with no domestic market access,” said the executive that had not taken a loan.

There are around 20-30 midsize metals traders in Singapore such as UIL Singapore and Raffemet. They are mostly backed by Swiss, Chinese, Japanese or Indian firms.

The expansion in Chinese lending comes as many Western banks have been hit by regulations such as the Dodd-Frank financial laws in the United States that have raised their capital holding requirements, pushing them to pare back on lending to all but their largest clients in the capital-intensive industry.

“(BOCI) have offered me a credit limit. It’s an extremely competitive rate,” said one of the executives in Singapore.

He said the bank was offering a flexible credit line at 1-1.5 percent per year on top of the London Interbank Offered Rate (Libor), which is often used as a benchmark interest rate in loans. Three-month Libor this week stood at around 0.88 percent.

That compares with wider bank lending rates to the industry of 2.5-3.5 percent over Libor, the executive said.

But the executive who had not taken out a credit line warned that Chinese lenders would not simply hoover up clients, as their lack of experience in the sector compared to “first class” Western banks meant their client-base would initially be limited to those struggling for other options.

“You have a risk that (Chinese banks) don’t understand something and that could result in a delay in payment, mucking up your cashflow,” he said.

“They will not necessarily take market share just like that.”

Reporting by Melanie Burton; Additional reporting by Vidya Ranganthan in Singapore and Engen Tham in Shanghai. Editing by Joseph Radford