BNP shuts Swiss commodity trade finance team amid frauds

by Bloomberg Sep 23, 2020

BNP Paribas SA is shutting its Swiss commodity trade finance business, exiting a sector it once dominated and which was hit by massive fraud.

The plan could impact as many as 120 employees in its Geneva offices, the French bank said in a statement late Tuesday. Closing the business had been under consideration since at least the summer, people familiar with the situation told Bloomberg at the time.

The former Paribas investment bank’s office in Geneva helped pioneer the use of letters of credit to finance oil trading in the 1970s, and became one of the leading lenders to the industry. However, BNP Paribas had been shrinking in commodity trade finance since 2014, when it was fined $8.9 billion for violating U.S. sanctions.

Trading executives still estimated that BNP Paribas ranked in the top 10 providers of such financing. But in August, the bank halted all new commodity trade finance deals as it reviewed its involvement in the business in Europe, Middle East and Africa, Bloomberg previously reported.

The collapse of Singaporean oil trader Hin Leong Trading (Pte) Ltd. when crude prices crashed this year drove several banks to reduce their exposure to the sector. A web of scandals in the Asian energy-trading hub—including Hontop Energy (Singapore) Pte. and Agritrade International—have already caused more than $9 billion in potential losses for global lenders.

Societe Generale SA is in the process of closing its Singapore commodity-finance sector in the wake of the Hin Leong fraud, which ensnared more than 20 lenders. ABN Amro Bank NV has also announced it would quit commodity trade finance, while fellow Dutch lender Rabobank is also reviewing the business.

In the world of trade finance, exporters and importers rely on credit lines to protect themselves against risks such as currency fluctuations, non-payment and political instability. The short-term financing governing sea voyages can provide quick profits for banks, but can go wrong when a cargo of commodities is used to get financing from multiple lenders—or that cargo used to back the loans doesn’t exist.

As the business of financing commodity traders grew, BNP was for many years the leading lender to the industry, accounting for as much as half of some trading houses’ bank lines.