Banks in Singapore band together to lift standards for commodity financing

BANKS with operations in Singapore are banding together to raise industry standards for commodity financing in Singapore.

This move was confirmed by the Singapore authorities, which told The Business Times on Thursday that this will be the first such set of "best practices" being developed by lenders here with the trading community, with the support of government agencies.

Reuters first reported on Thursday that some 20 banks with operations here - including lenders with significant trade-finance exposure such as HSBC, DBS, OCBC and other European banks - have set up a working group to propose new guidelines, citing unnamed sources.

This group is aiming to lift the standards behind lending practices and improve transparency in the sector, and comes amid some cases of defaults of trading firms amid a historic plunge in oil prices, Reuters reported. The most high-profile collapse in recent times is that of Singapore's oil trading giant Hin Leong Trading, with Hin Leong also admitting that US$800 million in losses from futures trading had allegedly been hidden away.

In a joint statement, the Monetary Authority of Singapore (MAS), Enterprise Singapore (ESG), Accounting and Corporate Regulatory Authority (ACRA) and the Association of Banks in Singapore (ABS) said they affirm the industry efforts to boost commodity financing standards in Singapore.

ABS's director Ong-Ang Ai Boon said this is the first set of best practices in commodities financing that banks in Singapore are developing with the trading community, with support from the government agencies.

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MAS's assistant managing director, banking and insurance, Ho Hern Shin said the regulator "strongly supports" the development of best practices in commodity financing to promote transparency and trust in the sector. "These practices will strengthen banks' lending standards and facilitate continued lending to trading companies."

ESG's assistant chief executive Satvinder Singh said: "I am encouraged that the banks and trading companies are coming together to improve the bankability of the commodities sector amid the challenging global business climate.

"Singapore is home to a very large and diversified group of commodity companies. This initiative to raise financing standards and best practices in commodities financing would strengthen Singapore's attractiveness as a commodities trading hub and help set standards for the region."

ACRA's assistant chief executive, legal services and compliance, Andy Sim said having a set of best practices will help to provide the "benchmark for corporate governance practices of commodity trading companies".

"ACRA believes that this collaboration between the banks and trading companies is a big step forward towards boosting the corporate transparency and governance for this sector."