ING Seeking to Expand in Commodities Lending as Others Retreatby
Bank able to do lower risk transactions with better collateral
ING CEO also sees room for bigger role in cash management
ING Groep NV is seeking to expand in commodity trade finance as other European banks retreat from a business squeezed by tougher regulatory demands and plunging prices, said Chief Executive Officer Ralph Hamers.
“Some of our competitors are withdrawing from some of the activities that we’ve actually determined as strategic,” Hamers said in an interview in London on Friday. “They’re soul-searching and don’t know where to go.”
Banks across Europe are scaling back commodity lending as regulators toughen scrutiny on riskier activities while a slump in energy costs and cooling emerging markets undermine revenue. BNP Paribas SA last year eliminated at least 20 commodity trade finance positions in Geneva, the hub for much of the world’s commodity trading, a person with knowledge of the matter said at the time.
Hamers said the perceived high risk of the commodities business has improved conditions for banks sticking with the market. ING serves customers in offices including Geneva, Sao Paulo, Rotterdam and Hong Kong, providing financial services to companies including primary processing, distribution and trading of commodities, according to its website.
“You can actually do lower risk transactions at a higher margin with better collateral because competitors are withdrawing,” Hamers said. ING sees opportunities “in the industry lending area, the short-term trade environment” of oil, gas, metal and mining, he added.
ING has bulked up its commodity trade finance operations in Geneva, led by Alastair Houlding, to become a major player in the sector once dominated by BNP Paribas.
The French bank was hit by a record $8.97 billion fine in 2014 for violating U.S. sanctions against Iran, Cuba and Sudan. Transactions from BNP Paribas’s Geneva office were the focus of the probe, with the unit cutting dozens of commodity financing jobs even before the settlement.
European lenders are some of the year’s worst-performing stocks, battered by a global selloff that has compounded pressures from rock-bottom interest rates and rules requiring bigger capital buffers. ING shares traded at 10.70 euros at 10:05 a.m. in Amsterdam, up 0.5 percent. They have lost about 14 percent this year, compared with a 20 percent decline in the STOXX Europe 600 Banks Index.
Part of that was fallout was sparked by a a slump in commodities ranging from oil and gas to metals. The Bloomberg Commodity Index, a measure of investor returns from 22 raw materials, slumped the most in seven years in 2015.
Hamers said that increased risk perception means that “you have to be careful not to overeat on it.”
“Clearly there are moments when the negotiation power is more on our side,” he said. “This is one of those moments in the oil and gas and the commodities market.”
ING ended the fourth quarter with a 12.2 billion-euro ($13 billion) exposure to the oil and gas industry in its trade and commodity finance department. Outstanding loans to natural resource businesses, including the metals and mining industry, stood at about 38 billion euros at the end of 2015.
In Russia, where the slump in oil prices and U.S. and European sanctions over the Ukraine conflict are weighing on the economy, ING has cut outstanding loans to 6.1 billion euros from 7 billion euros in the fourth quarter.
Russian President Vladimir Putin is “getting up in the morning saying ‘well, no repayments to non-Russian banks,”’ Hamers said, citing a fictional example. “That’s kind of the risk that you manage first.”
ING also sees room for a bigger role in cash management as banks including Royal Bank of Scotland Group Plc retreat from commercial banking. The nuts-and-bolts business of providing clients with checking accounts, overdraft facilities and managing their transactions gives lenders the chance to sell corporate customers more lucrative products such as derivatives.
Global companies rarely change their cash-management provider because of the complexity and depth of the connections they establish with their bank.
BNP Paribas ranks No. 1 in cash management with 38 percent of large European companies using the French bank for these services, according to Greenwich Associates data. RBS, which is focusing on U.K. consumer and commercial banking, picked BNP Paribas in July to refer cash-management and trade-finance clients in other European countries.