Asian banks woo commodity clients as Western lenders exit

Cash-rich Asian banks are ramping up their commodity and energy business as they push to secure a bigger share of the market before Western rivals, wrestling with regulation and fitful recoveries, return to the region.. Asian lenders are building on links to local companies to expand into trade and project financing, and using strong ties to identify opportunities, connecting, say, a Mongolian miner with a Chinese investor or an Indian trading house with an Indonesian smelter.. Lenders such as Singapore's DBS Group Holdings and top investment bank China International Capital Corp (CICC) have been quick to fill the gap after European banks in particular retreated to their home markets.. Data shows Asian banks have boosted commodities-related business, ranging from loans to merger and acquisition (M&A) activity.. In the commodities and energy loans market in Asia, ex-Japan, the share of European and US banks slipped to 21 per cent in the first quarter of 2013 from 31 per cent in 2010, according to data from Thomson Reuters LPC.. By contrast, Chinese, Japanese and Indian lenders boosted their business from 20 per cent to 32 per cent, for syndicated and club loans in international currencies, excluding project finance, ship and aircraft finance loans.. In M&A for Asia Pacific-related energy and power and consumer staples deals, 10 Asian banks ranked in the top 25 in the first four months of 2013, according to Thomson Reuters data, up from just two in 2008, before the credit crisis.. The statistics are just part of a potential seachange for banking in Asia as the region's lenders face the opportunity and challenge of financing massive infrastructure growth over the next 20 years and developing a range of deep and liquid markets.. "Many of our clients look to us because they want to do business with overseas companies. Maybe a foreign company doesn't understand them. We do," said Amy Cheng, a managing director in investment banking at Bank of China International (BOCI), an arm of Bank of China.. "How much market share have we gained? You can ask Goldman and Morgan Stanley how much they have lost," Cheng told Reuters in an interview.. LOCAL ROOTS, INSIGHT Executives at six of Asia's top banks, contacted by Reuters, listed deep local roots, specialist knowledge of their client base, market insight and access to capital as key advantages.. Commodities financing has become the fastest growing business for Singapore's DBS Group Holdings and it aims to double the business each year for the next three years, tapping its growing footprint in Asia.. Southeast Asia's biggest and most profitable bank has built a nearly S$25 billion loan book by funding the trade in products such as oil and coal, the company has said.. Many other Asian banks are expanding in crude oil, natural gas, iron ore, coal and metals, while some such as BOCI offer specialty products like renminbi financing.. In Australia, ANZ Bank is looking at expanding its physical business beyond its base in precious metals, said Geoff Clear, global head of Business Development at ANZ's commodities division.. "Our strategic focus been much more oriented toward jurisdictional expansion over the past 12 months," he added, highlighting China.. SHIFTING MARKETS The push comes, however, as the commodities market is changing, and Asia is losing some of its lustre.. Top banks such as JPMorgan Chase, Goldman Sachs and Morgan Stanley all reported sharp declines in their commodities business last quarter, hurt by falling prices, less volatility and tighter regulatory controls.. "If you look at the commodities space, the market is shrinking on the margin," said Janet Kong, a managing director at CICC in Beijing. "Liquidity is declining, overall positions have been cut, volatility is low.". CICC took this into account last year when it decided not to pursue aggressive expansion in the sector.. And Western banks are already starting to return to Asia for business with low balance sheet risk.. "From a balance sheet perspective, European banks are back in the game," said a Singapore-based trader at an international trading house.. "When it comes to financing cargoes, that bread and butter business, they have come back, in particular with material registered in LME (London Metal Exchange) warehouses because it's very light on their RWAs (risk weighted assets)," he said.. The opportunity for local banks in international trade finance when dealing with local companies with global ambitions may be as part of a consortium.. "You still want to have that all project-managed and led by the European banks, because frankly the capabilities of international banks are just a lot higher," he said.. EXPANDING FOOTPRINT Asian banks argue they are well placed to grow and retain commodities and energy related business as they expand their footprint across Asia, particularly for smaller scale and non-exchange traded business.. "(Regional banks) have a more on-the-ground touch, they are more physically tied to the customers. Local trading houses love to use them," said a Singapore-based source at a second global trading house.. Low funding costs mean they can also absorb new charges for counterparty risk that are deterring foreign banks that have been hamstrung by huge tier one capital requirements for their commodities derivatives business under Basel III.. "The only thing that is restraining the regional banks from growing as fast as the Europeans did is expertise - and they still have a bit of a product catch up to do," said a commodities source at a top Southeast Asian bank.. "Let's say the Singapore banks, give them three years, they will be the equal of any European bank."

Asian banks woo commodity clients as Western lenders exit

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