Singapore banks review commodity financing standards

Banks in Singapore are planning to overhaul financing standards for the commodity sector following a string of trading company collapses this year.

The government-backed initiative is designed to develop a set of best practices to strengthen Singapore's position as a global commodity trading hub, according to a joint statement by financial regulator the Monetary Authority of Singapore (MAS), government business agency Enterprise Singapore, the Accounting and Corporate Regulatory Authority and the Association of Banks in Singapore. Trading companies will be consulted on the plans, it said.

The move by banks and regulators follows the collapse of at least four Singapore-based trading firms this year. Hin Leong — one of Singapore's biggest physical oil trading companies — filed for bankruptcy protection in April. Smaller oil trading firm Zenrock was placed under independent management by the courts in May as part of efforts by banks to recover $165mn in debt. The local arm of Chinese oil trading firm Hontop, and Singapore palm oil and coal trading firm Agritrade, collapsed in February.

The company problems, combined with the economic downturn and allegations of fraud at Hin Leong and Zenrock, have raised the trading sector's risk profile and tightened financing for smaller companies.

There are few details of the new plans. The initiative is designed to raise financing standards to "improve the bankability of the commodities sector" amid challenging global business conditions, said Enterprise Singapore's assistant chief executive Satvinder Singh.

The development will promote "transparency and trust" in the commodity sector and facilitate continued lending to trading companies, MAS' assistant managing director for banking and insurance Ho Hern Shin said.

The Singapore products and bunker fuel markets have so far largely absorbed the impact of the collapse of Hin Leong and Zenrock amid a wider drop in liquidity in the coronavirus-driven collapse in oil demand.

By Kevin Foster