As European lenders retreat from commodity trade finance, Deutsche Bank AG is looking to grow its business in the sector, according to Daniel Schmand, the bank's global head of trade finance and lending.
"We are reviewing our commodity trade finance business to see where we selectively can take market share," Schmand told S&P Global Market Intelligence. "We are positively looking into opportunities in that space."
This type of finance covers lending across the energy, agricultural and metal commodity value chains, from producers to refineries and distributors, as well as financing for the "middlemen," the commodity traders. In 2019, the total revenue pool for commodity trade finance globally was $4.7 billion, according to Coalition, an S&P Global research company.
Schmand expects "flat to single-digit" growth in Deutsche's revenues from commodity trade finance in 2021, depending on the development of commodity prices.
It comes as European peers scale back their activities in the sector. ABN AMRO Bank NV announced in August that its trade and commodity finance activities would be "discontinued completely."
In the same month, BNP Paribas SA suspended new commodity trade finance deals in Europe, the Middle East and Africa, while in September it shut its Swiss commodity trade finance business, according to Bloomberg News.
Société Générale SA, too, decided to close its trade commodity finance unit in Singapore following the collapse of trading firm Hin Leong Trading (Pte.) Ltd., according to reports from the same news outlet.
A drop in transaction values due to historically low oil prices and a number of high-profile bankruptcies have hurt banks' commodity trade finance revenues during the pandemic.
Total revenues for this line of business for banks globally dropped 29% year over year in the first six months of 2020, with a 40% decline in the second quarter, according to Coalition.
Schmand said that while other banks might have been "overexposed" to certain traders, he emphasized that Deutsche Bank's strategy, from a risk perspective, "has worked out very well."
"We think we have the right controls, the right risk framework, which allows us to play in that space," he said.
While the German bank does not break down figures related specifically to commodity trade finance, a spokesperson confirmed that revenues for this line of business at the bank have been "stable" in 2020.
Asked about commodity trade finance losses during the pandemic, Schmand said Deutsche Bank only had "one isolated case" and that it regarded "digestible" numbers.
Deutsche Bank was reportedly one of 23 banks, including lenders such as HSBC Holdings PLC, Standard Chartered PLC, Rabobank, Crédit Agricole SA and DBS Group Holdings Ltd., to which Hin Leong Trading owed $3.85 billion in April. The German lender was reported by Reuters to have an exposure of $70 million, which was among the lowest of the banks listed. In comparison, HSBC had the highest exposure, of $600 million.
Schmand said his outlook for Deutsche's trade finance business was positive, expecting that financing volumes will rebound to pre-pandemic levels by the middle of next year.