By REUTERS
Bank of China (BOC) and Singapore’s government trade agency International Enterprise (IE) Singapore have signed a memorandum of understanding (MOU) to develop Singapore’s commodity finance and trading, the two said on Friday.
China is stepping into an area where Western banks are now hampered by regulation. It has been pushing to increase its role in the commodity sector for years to reflect its position as the world’s top energy and raw materials consumer.
Singapore is Asia’s main oil trading hub and its exchange, Singapore Exchange (SGX), also deals in other commodities like iron ore and natural gas.
BOC already has four regional commodity trading centres in Singapore, London, New York and Shanghai, but this is the bank’s first global business centre, it said.
The bank would offer financial solutions and services for commodity firms through two centres in Singapore, helping them to expand into new markets and grow globally, it added.
A global energy centre will provide financing for commodity markets, including trade and structured finance solutions. In addition, a commodity repo business will provide BOC’s branches and subsidiaries support in expertise to conduct commodity repo transactions.
Repo deals give firms ready access to short-term credit in exchange for goods.
In Singapore, BOC will focus on clients in IE Singapore’s global trader programme, which gives concessionary tax rates for some companies.
BOC declined to reveal how much it has invested in setting up the centres and how many staff it has hired so far.
As part of the MOU, BOC would support IE Singapore’s move into new business, including gold and diamond financing, said Satvinder Singh, IE Singapore’s assistant chief executive officer.
The bank will also provide S$50 billion (RM152.9 billion) of financial services to support companies from China and Singapore, including loans for working capital, projects, mergers and acquisitions, structured and trade finance, letters of credit, bank guarantees and bond issuance services.
BOC will also be a clearing member for physically settled commodities contracts launched out of exchanges in Singapore, including commodities bourses SGX and Intercontinental Exchange (ICE).
IE Singapore will also partner with BOC to help the growth of Chinese companies using Singapore as a trading hub.
“Because of regulatory requirements, some of the western banks all over the world are no longer providing the same size of lines, liquidity as they used to,” said Satvinder. “I think it’s very welcoming to see Asian financial institutions like the Bank of China stepping up and being able to commit in building up both in terms of quality of sophistication and in terms of size of liquidation that the market needs.”
— By Jessica Jaganathan
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