Banks seen curbing grain loans after collateral crops vanish

(Reuters) — Small and medium-sized grain trading houses will have a tougher time getting loans after lenders were caught by the disappearance of grains in Russia said to have cost Swiss banks over US$100 million.

Financial institutions will demand more guarantees from companies before getting credit — even when they are not trading with Russia — but the incident is not likely to affect the country’s long-term influence on the world grain export market.

Russia, the world’s former third-largest grain exporter, saw its harvest slashed by the worst drought in more than a century this summer, which prompted Moscow to ban all exports.

Several Geneva-based banks said last week they were investigating the whereabouts of a large consignment of grains used as collateral for loans granted to Russian trading house Rosinteragro (Rias).

“The financial impact for the industry goes even beyond Russia. Certain smaller organizations that were first caught in the world financial crisis, where credits suddenly became tight — but are loosening up a bit now — will see banks clamp down on credits again,” Agrinews analyst James Dunsterville said.

To get financing, trade houses often use grains stored in the country of origin as collateral and the storage is certified by inspecting companies.

“Too relaxed”

Rias is not an isolated incident in the region. A Swiss firm said last week grains worth nearly $30 million and used as collateral in loans had vanished in Ukraine last year.

Banks will be increasingly questioning whether they can trust the guarantee before lending any money, and are likely to be more demanding with small and/or regional firms trading grain in countries where there have been similar problems or are politically unstable.

“It should logically make banks more careful but we’ll have to see the conclusions of the investigations,” said a senior manager at a bank financing grain trading house, who asked not to be named.

Global exporters such as Bunge, Cargill, Glencore and Louis Dreyfus, which often control the chain from the mill to the client, are likely to be spared.

“Over the past years banks have maybe been too relaxed and now will say ‘We are going to look at things a little closer before saying OK to everyone’,” a major grain exporter said.

“But I don’t think this will change the banks’ attitude towards the whole sector. If there is a real problem behind all this it will rather change their attitude towards smaller, less established firms,” the exporter said.

Traders pegged the total amount of losses due to Rias at over $100 million (all figures US$), with the Swiss branch of BNP Paribas bearing around $80 million of that, although the company spokesman said it could not verify, invalidate or confirm these figures.

“One of world’s granaries”

Traders and analysts said nothing indicated at this stage that the incident with Rias, once a major exporter on the world market, was linked to the drought this summer and the ban that followed as no one knew if and when the grain disappeared.

But if those stories had come to light when there was no export ban in Russia, they would have sent global grain markets rocketing.

“If there had been no ban we would have seen wheat prices $10, $15, $20 (a tonne) higher,” Geneva-based Dunsterville said.

European wheat prices have gained around five euros since the Russian and Ukraine stories broke, mainly due to concerns about the Australian crop and U.S. sowings.

“It is not a commodity market problem, which is lucky. It is an internal problem within Russia,” Dunsterville said.

Statistics on Rias’ website show that up to June this year Egypt and Saudi Arabia were the main destinations for the company’s grain exports.

There were no data available after June.

Mounting worries that the drought would slash crops in Russia sent global wheat prices surging 60 per cent between the start of July and Aug. 5, the day when Moscow announced the ban.

The head of a powerful Russian grain lobby said on Monday Russia may extend its grain exports ban beyond July 1, 2011, as delayed fertilizer deliveries put spring crops at risk, threatening next year’s harvest.

Still, neither the Rias affair nor weather problems are seen affecting Russia’s standing on the international grain market.

“Whatever happens, we consider that the Russian competition will continue to grow. It will keep its seat as one of the world’s granaries,” a French trader said.

— Sybille de La Hamaide writes for Reuters from Paris, France.

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