ABN Amro to stop commodities, trade financing

Dutch bank ABN Amro said today it will withdraw entirely from commodities and trade financing and will shrink its exposure to the natural resources sector.

The move comes after a quarter in which the firm took large impairments related to falling oil and gas prices, having one of the largest exposures of any bank to the collapse of Singapore oil trading company Hin Leong.

Any exit of a large financial institution like ABN Amro from trade financing directly affects commodity trading firms that depend on readily available liquidity. When Basel III standards came into effect in 2015, banks' obligation to accumulate capital reserves left less money for them to finance commodities trading, with specialist firms like Vitol, Gunvor and Glencore stepping into the breach. The recent glut of crude and products held in floating storage around the world, encouraged by favourable forward curves, would have relied to some extent on funding to meet the cost of chartering tankers.

ABN's exposure to the collapse of Hin Leong appears to have been the last straw for the firm in commodities financing. It said in May that it booked an impairment of €225mn ($265mn) related to a "potential case of fraud" at an unnamed Singapore terminal, shipping and trading company. Court records from the bankruptcy filing show ABN Amro had $300mn exposure to Hin Leong. It also had a smaller exposure to Zenrock Commodities Trading, another Singapore oil trading firm that has hit financial problems.

ABN said it took €827mn in impairments in the second quarter related to Covid-19 and oil price developments, including €523mn mainly in the oil and gas sector at IFRS stage 3, where a loan's credit risk has increased to a point where it is considered credit impaired. The bank said it will reduce its exposure to the natural resources and transport and logistics sectors to purely European markets, while it will impose stricter lending criteria and credit limits.

By Ben Winkley