Standard Chartered 'Reducing $2Bn Diamond Exposure'

Finance and Trade
23/03/2016 09:17

Standard Chartered Plc is demanding more loan protection from clients in the Indian and Belgian diamond trade as the bank seeks to tighten standards, Bloomberg reported, citing sources knowledgeable about the new policy. The London-based bank has lent around $2 billion to the industry and is requiring diamond manufacturing clients to get payment insurance or provide 100 percent collateral. “We have been working with clients to find mutually beneficial solutions to continue to bank the diamond industry against a backdrop of increased compliance reporting and regulatory capital costs,” Standard Chartered said in an e-mailed response to Bloomberg. “We are focused on generating returns which cover our cost of capital and price accordingly in line with the market.”

The move comes despite the fact that diamonds account for less than 1% of Standard Chartered’s $261 billion of loans. Chief Executive Officer Bill Winters took over at the bank last year and found poor lending decisions made during the emerging-market and commodity boom. Since June, he has replaced the entire senior management team and pledged to review every business line and customer relationship, ranking their risk and returns, with the aim of restructuring or jettisoning about $100 billion of assets. Collateral from diamond clients won’t be acceptable in the form of receivables, and those who cannot meet the terms may face higher interest charges or won’t see their debt facilities renewed, the sources said.

Along with ABN Amro Bank NV, Standard Chartered is one of the biggest lenders to the midstream of the diamond industry which is heavily dependent on loans to fund the purchase of rough gems from miners such as De Beers. “We continue to provide significant capital to the diamond sector, despite other banks withdrawing,” Standard Chartered said in the statement. “We are developing innovative solutions and working with clients and insurance providers to increase the sector’s access to capital and deliver institutional investor funding.”

Anish Aggarwal, a partner at Antwerp-based industry consultant Gemdax, explained: “Diamond banks across the board are trying to de-risk their lending and increase their hard collateral. Diamond financing is going through a transition period, and the existing model might not work so well going forward.”