ABN Amro To Rein In Rough-Diamond Financing Citing Lack of Profitability

Rough Market
16/07/2019 10:12

ABN Amro sent a letter to several of its diamond clients stating that it would be limiting finance for rough purchases "in view of the continued lack of profitability in the purchase of rough goods." The letter, which was obtained by JCK and IDEXonline, was sent last week from an Antwerp branch of the Dutch bank to a number of its clients declaring a moratorium on rough loans, pointing implicitly to the industry's reckless behavior in writing, "We recommend you to show constraint [sic] and only consider purchasing rough when there is sufficient profitability." In other words, the bank is arguing that there is currently no profitability in manufacturing or rough diamond trading and that therefore it sees no sound business model in continuing to lend to businesses that cannot turn a profit. 

Rob Bates of JCK was in contact with ABN Amro spokesperson Brigitte Seegers, who told him that the letter should “be read in the context of rough purchasing that is in general currently lacking for a prolonged period of time which is much longer than the typical seasonal cycles (which would include positive months and less positive months). Therefore we request our clients to show constraint when purchasing rough till the markets start to improve again. On the back of this letter we are not reducing the overall credit limit but will for the time being be more restrictive in allowing drawings under the rough purchase sub-limit.” Bates writes that Seegers clarified that the move should not be viewed as a signal that ABN Amro is exiting the sector.

The letter reads:

"For some time, we and the industry in general have bene flagging concerns regarding the continued lack of profitably across a wide range of good in the midstream pipeline. As we have shared, we want our clients to conduct profitable business and refrain from purchases just with the aim to hold on to existing allocations with the mining companies or just to remain fixed to sources only hoping for better times to come. In  our view profitability is and should be determined on the basis of real sales margins for goods sold as soon as possible after the purchase of the rough, without considering credit terms.

Regrettably, despite making our concerns regarding the issue known to the industry, we do not witness the necessary change in the current situation. Therefore, in view of the continued lack of profitability in the purchase of rough goods, we decided that, for the time being, we do not consider it appropriate to support new drawings under your current 'rough purchase sub-limit' where there is no current case for profitable trading or manufacturing of rough.

We recommend you to show constraint and only consider purchasing rough when there is sufficient profitability. Please contact in advance in case part access to your purchase sub-limit is still required which can be discussed on a case-by-case basis."