After the collapse of oil trader Hin Leong and financial trouble at several other Singapore traders it was expected that banks in Singapore would tighten commodity financing practices.
As reported by Reuters earlier in July, Commodity Trade Financiers are striving to improve lending practices and transparency to avoid funding transactions where the underlying goods are double counted, or do not exist at all. The echo of these measures will hopefully help avoid future collapses and credit losses, but they will also affect both SMEs and larger corporations negatively, as funding and risk cover might dry up. ABN Amro, one of the banks with exposure to Hin Leon, writes in their Financial Report for Q1 that in the context of their “exposures to high-risk sectors such as offshore, diamonds and trade & commodity finance have been reduced in recent years, although more derisking is clearly necessary”.
Johan Egnell, Head of Asia at Mitigram agrees with the statements presented by Reuters
“Discussions that I have with both corporates and banks proves that banks are taking radical actions to mitigate the perceived increase of risks in the market. Some banks are even leaving the commodity sector completely, leaving companies and traders scrambling to find banks that are able to help finance their trade transactions”Johan continues.
Technology can help
As banks reduce accessibility to trade finance facilities, Mitigram provides an opening to the most trusted network of financial institutions. Having already onboarded more than 100 financial institutions on the platform, corporates use the Mitigram platform to reach out to both existing and new financial counterparties to request availability and pricing for all Trade Finance products. Through the platform they save time in their communication with banks, and they also receive responses from banks much quicker compared to using email and phone.
Johan Egnell continues to explain that:
“among our clients, which include both soft and hard commodity traders as well as large manufacturing corporates, we have noticed an increase in activity since June. It is obvious that there is a need to cover risk on obligors and for markets where it was not previously the case. Mitigram is seen as a catalyst in the sector as it is delivering efficiency and cost saving to corporates and traders.”
Mitigram is completely web based, and users are up and running within 24 hours. Currently facilitating more than $2.5Bn worth of transactions per month over more than 100 Financial Institutions ensures Mitigram is well equipped to assist corporates in the region. Connect with our team to request a demo.