A new player in commodity trade finance

摘要

Commodity finance, which involves lending to and servicing commodity producers, processors and traders either on an unsecured basis or secured by commodities and related receivables, has historically been a volatile market -just like commodity prices themselves. Numerous banks have entered and exited the market in recent decades. This was exacerbated by the financial crisis, and the economic downturn that followed, as this spurred a fresh wave of departures, largely by European banks. European banks dominated commodity finance in the pre-crisis period, largely because of the regulatory capital advantage they enjoyed over US banks. Most commodity counterparties are sub-investment grade given the impact of price volatility on their ratings and the fact that they are often located in emerging markets (and therefore constrained by sovereign ratings). At the time, US banks operated under Basel Ⅰ, which made it unattractive to lend to sub-investment grade credits as the relevant credit conversion factor was high. In contrast, European banks operated under Basel Ⅱ, which allowed for capital relief for specialised lending to sub-investment grade credits, and therefore gave them more flexibility to lend.