Commodity financing exposure in Asia-Pacific hits banks hard
ANZ and StanChart among the hardest hit as slump in crude oil and copper prices impacts Asia banks with loans backed by commodities
Sinking commodity prices have cast a shadow over asset quality in banks as at least US$23 billion of loan commitments in eight banks were backed by commodity plays in the Asia-Pacific region, data showed.
Commodity prices have taken a beating, with crude values dropping to a 51/2 year low due to a glut in supply and copper diving more than 20 per cent over the same period, as a slowing economy in top commodity consumer China affected prices of iron and base metals among others.
Banks with the biggest exposure to commodities financing are ANZ, Bank of Tokyo-Mitsubishi UFJ, Bank of China, Standard Chartered, Sumitomo Mitsui Banking Corp, HSBC, State Bank of India and DBS, according to the data from Thomson Reuters. The commodity plays are up from the US$21 billion seen in 2013.
Among the eight banks, ANZ had the biggest exposure of US$3.38 billion in loans to commodity plays. Bank of China's was US$2.8 billion, DBS had US$2.77 billion while Standard Chartered had US$2.1 billion in exposure last year.
Standard Chartered is a glaring example, with analysts growing increasingly concerned about the asset quality of the lender's loan exposure to commodity-related firms. Credit Suisse said in a recent report that Standard Chartered's US$61 billion global commodities exposure may require additional provisioning.
"In an adverse scenario, Standard Chartered would need US$2.6 billion of provisions and US$24 billion of risk-weighted asset increases as the riskiest of the commodities portfolio is re-assessed, resulting in an additional capital demand of US$4.4 billion in financial year 2015, just to maintain the base-case capital ratio," said Carla Antunes-Silva, one of the analysts who wrote the report.
According to Credit Suisse, among Standard Chartered's US$61 billion commodity exposure, US$32.6 billion is direct exposure to commodity traders with a further US$28.1 billion of exposure to energy, agriculture, metals and mining firms. This is in comparison to the bank's total assets of US$690 billion and shareholder funds of US$48.3 billion in the first half of 2014.