ABN Amro Restricts Rough-Sector Lending

RAPAPORT...ABN Amro has scaled back its financing of rough-diamondpurchases, citing a lack of profitability in the manufacturing and tradingsectors.The Dutch bank, which mainly lends to rough dealers, will only offer credit without proof of onward sale if the buyer canmake money from the rough, its Antwerp branch said in a letter to clients Friday.It called on the trade to show restraint by purchasing rough only when that is the case."For some time, we and the industry in general have been flagging concerns regarding the continued lack of profitability across a wide range of goods in the midstream pipeline," ABN Amro said in the letter, seen by Rapaport News. The lender criticized the practice of buying rough to maintain supply allocations, and argued that the necessary changes to purchasing practices had not occurred despite it making its views known. ABN Amro requires its diamond clients to provide an invoice for the onward sale of the rough they purchase. However, it previously allowed borrowers to use a proportion of their credit facility to fund rough purchases with only proof they had bought the rough. Following last week's announcement, the bank will only offer that second option - known as a "sub-limit" - if the client can prove it can make a profit, and only on a case-by-case basis, a spokesperson explained. Loans based on invoices for onward sales will continue as normal."We are not reducing the overall credit limit, but will, for the time being, bemore restrictive in allowing drawings under the rough-purchase sub-limit," the spokesperson continued. "Hopefully the markets will improve gradually so we can regard this more as a temporary measure." Profitability should be determined by "real sales marginsfor goods sold as soon as possible after the purchase of the rough, withoutconsidering credit terms," the letter added.ABN Amro has shrunk its diamond business in recent years. Last year, it closed its diamond and jewelry lending operations in the US andthe United Arab Emirates."We remain cautious with respect to this market," TanjaCuppen, the bank's chief risk officer, said in an analyst call on May 15 inresponse to a question about the diamond industry. "It is a market underpressure. You see consolidation, and competition also from 'artificial'diamonds. You see pressure on the sector, and we expect that to remain." Image: An ABN Amro branch in Capelle aan den IJssel, Netherlands. (Shutterstock)