Société Générale is closing its Singapore trade commodity finance unit after the collapse of oil trader Hin Leong Trading prompted the bank to call a halt on fresh funding for commodity deals in the region.

BNP Paribas meanwhile has suspended new commodity trade finance deals and will review its business links in the Europe, Middle East and Africa (EMEA) region according to the Bloomberg news agency.

L/C exposure

The French banks' retrenchment is in line with increasing reluctance amongst financial institutions to take on deals involving some of the world's largest commodity traders, several of which have failed spectacularly over the last few months.

The exposure of letter of credit (L/C) business to these failures is not clear but it may be massive, as indicated by ABN Amro Bank lodging a claim against Hin Leong Trading, that includes applications for charges related to irrevocable L/Cs tied to the Singaporean oil trading giant's assets (DC World News, 21 April 2020).

Market commitment

Customers of BNP Paribas have reportedly been told that the bank, one of the most active in the commodity trade market, will not look at any new business unless there is an existing contractual obligation.

Despite the US$240 million debt owed to SocGen by Hin Leong and its freezing of fresh commodity funding, the bank said in a statement that natural resources financing is a core expertise and it "will remain committed to the trade commodity finance sector, including in Asia".

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.