Antwerp, the world’s biggest trading hub for uncut diamonds, gets a new lender to the industry today as Union Bank of India opens a branch in the Belgian city.
The move by the Mumbai-based company means that five Indian lenders will be active in Belgium, according to the country’s central bank. The Antwerp office, in the heart of the city’s diamond district, will dedicate a fifth of its $200 million loan book to diamonds in the first year, Union Bank Chairman Arun Tiwari said in an interview in the Belgian city. The office will also undertake trade finance, remittances and syndicated loans.
“We have been doing diamond business for many number of decades back in India,” Tiwari said. “Since we are in Antwerp we will be doing diamond business as well” as lending to companies in other industries.
The diamond industry globally needs more banks to help spread the risk of funding diamond transactions and to ensure more competition and choice, as well as keeping the industry on a sustainable footing, said Erik Jens, Chief Executive Officer at rival ABN Amro’s International Diamond & Jewellery group.
Diamond companies rely on financing, with dealers using credit to buy rough stones from miners and to fund gem-trading and the cutting and polishing of stones for jewelry production. The biggest lenders to the industry are State Bank of India (SBIN), ABN Amro, Antwerp Diamond Bank and Standard Chartered.
Antwerp, which handles about four-fifths of the world’s rough diamonds, has strong trade links with India and imports most of its polished stones by carat from the Asian country, according to the Antwerp World Diamond Center.
Jens sees the diamond industry globally attracting other new banks this year as the balance between risk and return improves. He predicts increasing interest in consortium banking, or “club” deals, where several banks finance a borrower’s needs.
“I see interest coming in,” Jens said. “I see banks coming up with policy papers internally to do diamond deals. I see it in Africa; I see it in the Middle East.”
Consortium banking has been around for more than a decade in India and typically involves three to 10 banks, according to Anish Aggarwal, a partner at Antwerp-based industry consulting firm Gemdax.
“I don’t think the industry necessarily needs more debt at an absolute level,” Aggarwal said. “But lending, especially outside India, is concentrated in relatively few hands. If these banks are looking to reduce their own exposure to the industry, they may seek to encourage other banks to step in.”
Diamond companies, dealers, manufacturers and cutters, collectively known as diamantaires, have had to adapt to a changing world. Banks have tightened lending amid a push by regulators for them to boost the capital they must have to absorb possible losses on their investments. The Basel rules include changes to how banks should weigh the riskiness of their assets, to make such assessments more conservative.
ABN Amro, one of the top four lenders to the industry, last year was the first to demand that clients put up more of their own money for gem purchases, cutting the amount it lends to 70 percent of purchases from 100 percent. Antwerp Diamond Bank, the KBC Groep NV (KBC) unit being sold to Yinren Group of China, also reduced its financing to 70 percent.
Antwerp will be Union Bank’s third overseas branch after Hong Kong and Dubai. The bank also has representative offices in Shanghai, Beijing, Sidney and Abu Dhabi, and is awaiting approval to start banking operations in the U.K.
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