Commodity trading is facing a hard time as French banks and other European institutions are limiting their lending activities due to the banking crisis, Financial Times reports. European banks, such as BNP Paribas, Société Générale and Credit Agricole, the main financiers of trading houses, may reduce credit, leading to liquidity crunch for those dependent on short-term funding.
According to Dealogic, trade finance lending is low 6 percent year-on-year. Credit to the trading industry is getting scarcer and costlier, particularly in U.S. dollars, as the banks seek to increase their capital buffers. The move is aggravating the adverse affect on commodities trade finance of the new Basel III capital rules.
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