Singapore oil trading turmoil hits banks

The fallout from the collapse of Singapore oil trading company Hin Leong is rippling across the global banking sector, compounding concerns about the vulnerability of the city-state's commodity traders to a pullback in bank financing.

Dutch bank ABN Amro today booked an impairment charge of €225mn ($245mn) because of a "potential case of fraud" at a Singapore terminal, shipping and trading company. It did not name Hin Leong, but court records from the Singapore company's bankruptcy filing last month show ABN Amro had the second-largest exposure of any bank to Hin Leong, at $300mn.

"The company is suspected of keeping loss-making transactions outside its books… the initial analysis on the possible recovery of the exposure did not give comfort and a significant loss is expected," ABN Amro said.

Hin Leong made around $800mn in futures losses in recent years that were not reflected in its financial results, court documents show. The company owes banks around $4bn.

UK bank HSBC, which is owed $600mn by Hin Leong, last month said it took a "significant charge related to a corporate exposure in Singapore" in the first quarter. Both banks also blamed lower oil prices for their worsening results in the period.

HSBC has been the most aggressive creditor of Zenrock Commodities Trading, another Singapore oil trading company that has hit financial problems because of the market slump. HSBC, ABN Amro and at least nine other banks have total exposures of around $165mn to Zenrock, court documents show.

HSBC, which is owed around $49mn, has accused Zenrock of dishonestly obtaining multiple sources of financing for crude cargoes.

The bank losses are raising concerns among some Singapore-based traders that financial institutions may cut lending to the sector. Some banks have already stopped or scaled back issuing letters of credit to smaller trading firms and are requiring cargoes to be pre-sold before issuing financing, market participants said.

The Monetary Authority of Singapore (MAS) said last month it was watching developments related to Hin Leong and "has reminded banks not to de-risk indiscriminately from the bunkering and oil trading sectors".

By Kevin Foster