ABN AMRO sent a letter to a number of clients, declaring a moratorium on rough loans, quoting the industry's behavior. Arguing that there is not profitability in manufacturing or rough diamond trading and that therefore, noting that it does not identify the "necessary change in the current situation," ABN will not extend loans for rough diamond purchases. The "necessary change in the current situation" can only be understood as the bank's clients' unwillingness to suspend their rough purchases until prices come down.
Below is the full text of the letter:
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"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.
Although we hope you understand why we take this step, we are open to elaborate on this if you have any questions.
Your Faithfully,
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